The stomach-curdling nosedive eradicated about $10 billion in shareholder wealth and dragged VMware’s parent company EMC into the mud as well. The company, which spun off VMware last summer and remains its largest stakeholder, saw its shares slip 6%, though it just reported a strong quarter itself.

Perhaps VMware, which has been lauded as one of the best tech offerings in recent history, is overvalued after all. The company is facing increased competition from powerful rivals. “If you miss your numbers in just your second quarter after going public, that suggests the stock was overhyped,” Trip Chowdhry, an analyst at Global Equities Research, told Reuters. “The story is not as perfect as investors believe. Oracle and Microsoft and Citrix have spoiled VMware’s party.”

Perhaps. But if it’s not, the sudden decline in VMW could present a nice investment opportunity. “Here’s your buy-in discount,” says the Motley Fool. “Enjoy it while you can. It took 10 weeks for VMware’s stock to go from a 52-week low of $51.50 per share to the high-water mark at $125.25. It can happen again, so don’t get caught flat-footed.”

Five hundred million dollars. Quite a sum–especially when XenSource is burning through $15 million a year in expenses, but generating just “a few million in revenues,” according to Citrix CFO David Henshall.

That said, Citrix expects the server- and desktop-virtualization market to balloon to $5 billion by 2011, and this acquisition will put it in a good position to carve itself a piece. Said Peter Levine, CEO of XenSource: “This move is not about competing for the 5% of the market that is already being served. It’s about steering into the 90% white space that is wide open, both at the server and in new emerging opportunities at the desktop.”

Course, that space won’t be wide open for long. Microsoft is belatedly developing its own virtualization product called Viridian. And when it finally debuts the virtualization land grab will really begin. As the research outfit 451 Group told its clients: “The virtualization market now revolves around three players: market darling VMware; Citrix’s combination of young blood and old money; and the (potential) threat of Microsoft’s Viridian, slated to ship in Q3 2008. Both Citrix and VMware have a 12-month window of opportunity before Microsoft shows its full hand.”