One word: Portabilty

If you emulate instructions rather than virtualize instructions (like VMware and DosEmu do) not only do you have more control over both hardware and software emulation, but you also allow your program to be ported to non x86 platforms (PowerPC, ARM, Solaris, etc.)

Of course, the downside is that you sacrifice speed. I have to say that portability is a smarter choice for the long run though - there will probably be interest in DOS games long after the current style of Intel CPU architecture goes out of style. Mainstream use of 64-bit CPUs is just around the corner, and I have no idea how backwards-compatable they are at a hardware level with current technology (all I know is that the BIOSes are going to be totally different, because I knew some Intel interns in college who were testing them).

...furthermore, some portions of the CPU will always have to be emulated. To see how difficult bolting some of those things on to otherwise-virtualization, go take a look at the dosemu project.