So why does this blog item, published April 26 not only say that Windows Server 2008 R2 does not support AVX, but doesn't support it "by design as we wouldn't want to start a virtual machine with unknown processor capabilities and potentially harm the guest OS?"
Because Microsoft is really good at communicating perfectly accurate information that is more confusing than not having the information in the first place.
(Example: This is the actual solution on that page: "Solution: There are two solutions. The recommend[ed] solution is option 1."
Neither Option 1 nor Option 2 are listed as such on the page. To find the solutions you have to go back and search until you find the two pages I linked to above – which I got from Wikipedia entries that appear to have been written by Intel employees.
Eventually you might figure out that the same blogger posted links to the articles about AVX support and adding SP1 – two days before he posted one saying it wouldn't work. There was no link between the two, but if you follow the breadcrumb at the top of the page to the home page of his blog, you can see it right below the original one that caused all the confusion. )
So what's the real answer to whether Sandy Bridge supports Hyper-V?
Yes, it does, even though it was designed as a low-power processor for tablets and notebooks and hasn't shipped a server version yet, so there is a limited amount of virtualization you'd want to do with it anyway.
To use Sandy Bridge with Hyper-V, first install Service Pack 1 to either Windows 7 or Windows Server 2008 R2. (they're on the same page.)Then, if it still doesn't work, install the Hotfix.