One of the main complaints (?) of developers is that they have to undertake Sharepoint development inside of a virtual machine, or on a server. Personally, I don't find this a problem as long as you are not working against a live server!. Our new development environment (that I'm sure Iain will blog about) is almost entirely virtual, development, staging and test.
Although not supported by Microsoft, there are a few options to get around this....
a) Install WSS on Vista
Yes it can be done (although I haven't personally tried it yet) and the guys at Bamboo have posted an article on this
b) Install the various assemblies, XSD files onto the client PC as noted here (this is the route I've taken with the laptop so that I dont have to always work inside Virtual Machines)
The downside of both of these is that debugging gets more difficult - you will have to configure remote debugging on the server, plus some of the tools (such as WSS extensions) won't install or run correctly