Exactly - your L2 Ethernet shouldn't go beyond immediate connection between end system and first L3 router, in DC conditions it should be to Tor... Or on-Hypervisor router.
Larger L2 spans should be done only when required, and preferably with things like TRILL/SPB.
It's how I deployed VM's at scale using BGP from the VM host to the top of rack switch. VM's could route to each other, but no layer 2 connectivity.
It allowed for easy migration of systems between VM hosts too, as the ToR would learn the /128 or /32 and traffic would route to the new VM host.