Thanks for the input!! I am running Win 7 Ult. right now.
After I choose a VM; Do I need a cd-key/activation key if I want to run Windows. (I don't think I will run Windows, just curious; I like the idea of running Linux)
If you want to run Windows, then yes, you will need an activation key. I am pretty sure that you will need a separate Windows license (it has been a while since I read the Windows EULA, so I don't recall if there is any provision that might make it "legal" to run your existing license of Windows "twice"...once on the primary system and also in the VM...but I pretty sure, aka 99%, sure you cannot). This is the other reason to look at using a version of Linux.
Also, if I choose to use a Linux VM; When I use it, how is it different then using my pc? Does it hide your IP, location? Or just make it so you are unable to download malware?
It is just a different OS. It is not necessarily more or less secure than Windows (I don't mean to start a debate...although I suspect some might see it as an invitation to debate relative security of the different OSs). The one definite way is that it is secure is that most malware, virus, Trojans, etc are Windows based. Thus, any such Windows malware will NOT affect Linux.
Now, Linux is still susceptible to things like Java vulnerabilities or website tracking by way of cookies, etc. So, if you are using this VM for sensitive stuff, then you still need to practice "safe computing" habits.
Last question!, I am using BitLocker to encrypt my system. I use a cd-rom, usb, dvd-rom as my key as the 'password'. Considering I use Bitlocker with full disk encryption, will that interfere with dual boot/ using a VM?
Sorry for all the questions, or if they don't make sense. Trying to get a grasp/understanding.
BitLocker will not effect anything. A VM is not really a "dual boot" situation. You are running your VM WITHIN
your primary OS. So, with a VM, you would boot into Windows normally. Once you are fully booted into Windows, you then start your VM program (Parallels, VMWare, VirtualBox, etc) and then start the actual VM OS that you have setup. That VM OS will then be running in a window (nominally speaking...some VM programs have ways to make it so it is not a pure window experience) within your regular Windows...just like if you run Word or some browser.
Now, I will note that if you are REALLY paranoid and worried about malware that might have some sort of keystroke capture function (i.e. a keylogger), then I don't believe that a VM running inside of Windows will help in that situation. Since you are still booting into Windows and then running the VM OS, the keylogger will likely still be able to record your keystrokes as you enter your passwords to banking, etc websites. This is why it might be worth considering using a "runtime" bootable Linux DVD/CD. Since you never boot into Windows, any malware (including keyloggers) should be a non-issue.
The other option is get a cheap second device that you use ONLY your sensitive stuff...maybe a Chromebook.