for performance reasons in vmware i always prefer one hard drive for the host operating system and a seperate drive for the guest operating system(s). most m-atx cases only have space for one or two hard drives, so quite how you are going to do raid, i'm not sure.
you can still go for the m-atx form factor with integrated video (i really like these) but you may have to go for a half-way house on case size to fit the disks in.
i'm not sure i would 'trust' an array of disks to an on-board controller, so you may want to look for a dedicated card.
someone did a nice spec a while back for an amd dual core based system for vmware - i'll see if i can dig it out, perhaps you will be able to adapt it for your needs.
with respect, i think you may need to increase your budget here a little.
edit: damn, you guys are fast! you've done a spec in the time it's taken my to write out all my speil above!