Massive performance hit during new VM disk creation

Scenario: SLES9 dual-Xeon host, GSX 3.2, two running Windows 2003 VMs

While creating a new VM I specify that I want to create a 25GB virtual disk (all at once, no split), the host and the VMs become very, very slow.  top shows the system at 80+% wait (I/O I guess).

What steps can I take to lessen the performance hit (systemwide really) while doing heavy disk I/O?  The I/O is via QLogic HBA (2Gb), QLogic fiberswitch, and to either Xiotech Magnitude or Apple Xserve RAID.  Actually I think the performance hit is equally bad if I create on the local SCSI disks.