Gnome means you're going to have a UI front end -- i.e. windowing system for it -- similar to windows. It will probably be easier for you to deal with coming from windows, but strictly speaking, a windowing system isn't necessary for doing Linux builds of arduino projects. You could even have VMware create a shared folder between your host (windows) and guest -- and do all your editing in windows, and then switch over to linux to run the makefile on the cmd line.
Or you could use Gnome on Linux and edit your projects in something like gedit (gnome's more capable version of notepad -- trust me, it's much better).
So, if you do go with an X-Windows system, you have two main choices: Gnome or KDE -- it probably doesn't matter which you choose at this point...gnome is a little more popular I think. There are other variants, as well, but this reply is already too long winded. Using an X-windows system on your VM will definitely make your image size blow up. You can download very simple little ubuntu VMs that have no X-Windows installed for a couple hundred meg.
The nice thing about VMs is that if you don't like it or you screw it up, you can just delete the 700MB file, and start over or get another one. You also need some reasonable hardware to make them run ok -- your PC should have at least 2GB RAM, and a decent processor or multi-core.
One of the things I look for is to see if they have VMWare Tools installed. This is kind of important b/c it allows you to do things like drag/drop files between the host/guest, and has better mouse/keyboard support. I usually just create my own VMs -- so I'm not sure which one to pick exactly. The VMWare site isn't the only place to find them. You can google for them, or find them on torrent sites.
This is an older Ubuntu distro, but it has VMWare Tools installed: http://www.visoracle.com/vm/ubuntu810/
I take it you are looking at this one: http://www.trendsigma.net/vmware/ubuntu1104.html
-- the latter will probably be fine, but it doesn't look like it has tools installed, and AFAIK, you can't install them with VMWare Player.
I'd suggest just experimenting with one or two, and see what fits for you. If you have any questions, you can ping me direct at davis at daisyworks dot com, and I'll do my best to help out -- not sure if the forums here care so much about virtual machines.