Ok so to work the rendering out, I figured that glxinfo was pointing the dri module still at the nvidia one....
Since glxinfo outpus still says:
client glx vendor string: NVIDIA Corporation
Therefore to fix this to get hardware render,
run following commands
rm /usr/lib/libGL.so.1
ln -s /usr/lib/nvidia/libGL.so.1.2.xlibmesa /usr/lib/libGL.so.1
Let me know your result, you should pretty much be able to run this vm as a full media director now. I can hardly tell its virtual now, the only difference now is still can only get virtual stereo sound, but I can live with that. Maybe one day someone will write an audio passthru driver to utilize the audio directly.
Regards
Commsbyte
