"Not enough machines" and "network gets slow before we even get to enough machines" were the two main bottlenecks. Virtualization solves them to some degree.
What doesn't help nowadays is the marketing hype that tries to oversell everything and the insane complexity involved in sustaining the whole thing, since virtualization on x86_64 is still, to a high degree, an afterthough that was grumpily patched on x86 along with everything else. The PR bullshit makes serious people outside the high-availability & distributed field discard this as fancy fluff, and the baroque technology stack makes the development pace rather slow.
In the shallowest mode it is just process separation at the deep end it gives you a lot more than that.
The majority of my experience has been using OSv, running Akka, and it's yielding excellent results. Image sizes are small (<200MB), easy enough to upload to AWS and create a new AMI in a few minutes. Boot time to a running application is a few seconds. The only possibly downside is that OSv (as yet) doesn't support paravirtualisation, only HVM.
Upcoming paper: http://anil.recoil.org/papers/2015-nsdi-jitsu.pdf
We run the millions of lines of code because web servers typically serve up web applications which in turn depend on a whole host of infrastructure being available. The millions of lines of code support all the possible hardware that you could throw at it (and so you can save some if you compile your kernel just for that purpose), and if you know exactly which services your web-app will depend on then you can prune even more.
Specialization always pays off in terms of efficiency and it always costs in terms of ease of expansion and adaptation to future needs.
But here the boot time is a proxy metric of complexity.
It's great to have software that can do a wide spectrum of things. But your server most often does a narrow spectrum of highly predefined tasks. You often go to great lengths to obviate and disallow any other activity on it, for security reasons.
So it would be great if you took the universal software, somehow cut it to your task set, and could throw away the unused parts (which are 90%+). Unfortunately, this is not really attainable with traditional OSes. Unikernels allow you to do just that—with some quite noticeable limitations, as of now, though.