Well there are some cheats that are purely cosmetic but can give a edge in certain gaming scenarios and are very hard to detect serverside. AntiCheats are basically security by obscurity, I don't think anyone should trust them, But I think running them in a VM isn't that bad of a deal?

I think running on the server would have a much higher cost. If you think about it, you are offloading the hardware cost onto the customer

And as a plus you have access to all customer data (rootkit).