Since I was beating my head against the wall for several hours last night trying to figure this out I’m going to give a piece of advice to everybody working with OS X Lion Server in a virtual environment.
You can not set your virtual server to be an Open Directory Master unless there are at least two CPUs attached to the virtual machine. No errors indicating as such will be given, apparently you’re just supposed to know this intuitively. It’s a very strange bug and thankfully somebody figured it out.