Flatten Dell server with SBS 2011, reinstall in VM

Yes, you can, in accordance with Microsoft's licensing requirements (I.e. 2008 Enterprise includes more "virtual" licenses than 2008 Standard, etc.):
http://i.dell.com/sites/content/business/solutions/whitepapers/en/Documents/virtual-machines-oem-media.pdf

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One note on this though; OEM licenses are tied to the hardware that they are sold with. I'm not sure Microsoft will allow transfering an OEM license to something that's not the original hardware (e.g. a VM (that may even reside on the original hardware)). I know Microsoft won't allow transferring an OEM license to other hardware, but I'm not sure about transferring it to a VM on the original hardware.

I was always under the impression that OEM was not licensed for virtual machines, but that document seems to suggest otherwise.  However, beyond what is in that article, I do not know anything for certain.  One thing that got me wondering about it was the fact that the Datacenter edition has unlimited "virtual" instances tied to its license, which would be completely unusable if it were restricted only to the physical hardware with which it was purchased.  Dell does sell the Datacenter edition installed on their servers, so as far as you are respecting the licensing requirements for your edition through Microsoft (4 virtual instances with Enterprise, unlimited with Datacenter, and singular licences for Standard), it would seem that it would be acceptable.

As for SBS 2011 itself, barring any OEM restrictions, you are entitled to a single instance, either virtual or physical:
http://www.google.com/url?sa=t&source=web&cd=2&ved=0CCoQFjAB&url=http%3A%2F%2Fdownload.microsoft.com%2Fdownload%2F4%2F5%2FC%2F45CD1DC6-9204-44DD-999B-24B50A9144B6%2FSBS%25202011_Licensing_FAQ.pdf&rct=j&q=sbs%202011%20virtual%20licenses&ei=CtzCTcb_I4y6sAPMh9XyDw&usg=AFQjCNF-s_Zd6xUGOxx8DgmXDDpBVem68A&sig2=Rfg_X856zrHt6SjSWdt5Dg

From what I understand, with Enterprise and Datacenter you actually get 2 license keys; one is good for a single activation (on a physical server) and the other is good for virtual machines (the key from Enterprise is good for 4 virtual machines and the one from Datacenter is good for an unlimited number of virtual machines).

This was my concern too because I thought a VM would violate the EULA.

That is my understanding as well, after having read the first article I linked from Dell.