can I go for virtual server environment using entry level desktop
board having i3 or i5, 8GB RAM and 500 MB HDD without compromising any
performance compared to existing machine?
With the exception of th hard discs (if you can go with an SSD that will make a hugh difference) the answer is clearly yes. The P4 is ancient - seriously ancient. Likely my mobile phone has more processing power than this one. An i3 is going to run circles around it.
Wikipedia gives the most modern P4 (http://en.wikipedia.org/wiki/Pentium_4) in a 65nm process. It was though a looong processor - the P4 line goes back to 1995.
Anyhow, you jump multiple generations if you get a current processor, so the speed advantage will be significant.
How many network interfaces would require if I create three VMs on this server?
How long is a piece of string? You are supposed to know basics as professional admin (and only those are supposed to ask here). We can not answer that. One, if you isolate draffic with VLANÄs and can live with the 1gigabit or 10 gigabit limit that this imposes. 100 if the VM's need that.
I want to move to virtual environment for two reasons, I may create
two or three Windows machines which can be used for s/w product
testing
You have a problem here. A 500mb hard disc WILL overload. IO is generally a very limiting factor in virutalization and patching can get hard. I would suggest either a 500mb velociraptor if you can not afford more (that at least givey you 10k RPM) or - much better - a SSD. If you run compilations / builds then man, this one poor HD will really get hit hard.
