My Windows Phone cohort and all-round good guy Peter Torr posted on exactly the same topic that I did at almost exactly the same time... and we didn't co-ordinate it at all!

http://blogs.msdn.com/b/ptorr/archive/2010/08/16/virtualizing-data-in-windows-phone-7-silverlight-applications.aspx

Creepy, huh?

Peter has a great overview of virtualization and shows a different sample and given how tricky virtualization can be I highly recommend you also read his article.