The attack could compromise other servers yes. I think the scenario you describe is a possibility, although there are some technical feats that would make wide-scale exploitation difficult - you need to know what you want to modify ahead of time which would be difficult.
Virtualised environments that don't pass the vendor specific commands should be immune to the attack though. As others have said, encryption would probably allow tampered pages to be detected. I'd be interested to see if the modified firmware could ignore new firmware...
> encryption would probably allow tampered pages to be detected
Careful!
It can, but doesn't always. For example, eCryptfs currently doesn't protect against tampering; it uses Cipher Block Chaining (CBC) mode without a HMAC or other signature.
(I'm working with some colleagues to add Galois/Counter Mode (GCM) support to eCryptfs, which does provide some form of tamper-detection.)
Virtualised environments that don't pass the vendor specific commands should be immune to the attack though. As others have said, encryption would probably allow tampered pages to be detected. I'd be interested to see if the modified firmware could ignore new firmware...