@Chopper3 already mentioned that VMWare Server is dead and should not be used anymore at all. My answer assumes that you use something like ESXi, KVM or Xen instead.
In this case, using a VM as a PXE server is not a problem and can be done easily, there is no difference to a physical machine in that regard. It's also possible to configure a system where the OS is loaded from the network instead of a local disk, but depending on your requirements, this can be a complex project. Look into LTSP and its fat client mode for an example.
To do all this, using an PXE server is the easiest solution and while it might not be strictly necessary, alternatives like minimal systems, e.g. for boot floppies (or images) are meant as a workaround for lack of PXE support on the client side and I don't see a reason to use them if PXE support is readily available.