Let me qualify my question with these points:
- There is only one developer.
- The developer is the server administrator.
- The production server is Windows 2008, iis7.5, Sharepoint 2010 Enterprise, and we have a copy of VS 2010 Enterprise, and Active Directory.
- We are too poor to buy another server, but we can purchase a workstation
- I prefer to work from my workstation with a RDP connection to the server.
Some questions I thought of:
- Is there a way to do the development from my workstation?
- Will installing Sharepoint and Windows Server on my dev machine require a second set of licenses, or are the ones I have for production sufficient (and M$ understands)?
- Do I need to purchase another license for VS and SP2010?
- Is it preferable use a virtual machine or a real machine?
I found this post, which is related: Sharepoint 2010 Development Environment Set-up
What I am leaning toward is to purchase a 64-bit system with Windows 7 and lots of RAM and using that for development (right now I am still using XP).
 The idea of using a virtual drive is quite appealing, and it appears that extra licenses must be purchased for that too - but aren't licenses for VS and Sharepoint (and Server) only good for a few installations? With that in mind, it seems a regular hard drive (SSD, as is pointed out below) would be better.