im trying to figure out how to set up and run (if it is possible) up to 5 virtual machines (all win 7) with a separate monitor and keyboard/mouse for each VM all run from one physical system. is this possible, and what do I really need to do it? 

the reason for this is I want to try and run a setup for a computer game, and I want to try and have 5 people all playing on one actual rig to save setup time and costs.  I have a very powerful machine that can support this, and I know I can run multiple VM's at the same time, but how far can this concept be pushed? 

I am pretty sure I need 5 cd keys for the separate VM's, but does microsoft's VM solution support this, or am I better off with Linux as the base system?

Hyper-V will not support a multiple user system where you have 5 monitors, keyboards, and mice connected to one computer.

You would need 5 licenses, but you will also need additional software or hardware to do this.

Hyper-V is a virtualization tool, but it doesn't allow you to multiplex the KVM portion.  There is 3rd party software that will do this.

Also, you can look into VDI, but in general you'd use a central server and have 5 thin client computers connecting to that server.  For 5 users, VDI is not cost effective.