We do not oversell plans based on memory. You are correct we reserve a small amount of the parent OS (Hypervisor) and the rest of the memory is divided amongst the virtual servers.
Our algorithm places smaller virtual machines together, and larger ones together as well. This means you are also correct that the larger the server that you purchase the less busy the entire system is because there are less users, so you get even better performance.
We do not use a SAN/NAS for primary storage, we use it for backups and snapshots. All virtual machines run from local storage in production providing the best possible performance and stability to our users.