If they are being honest here, what they have done is install a single virtual machine on the hardware, so you are not sharing the resources with other users, but how can you be sure of that? and there is a performance loss incurred by this due to the VM layer.
It is more likely that they are doing this so that if hardware fails they can just transfer the virtual machine to a new server and not have to mess about with reconfiguration.
The disadvantage is, if their hardware monitoring is not up to scratch (which I doubt it is) and they do not detect an error, you do not have the ability to detect errors yourself either or have a third party monitor the server's hardware as you are inside the virtual box without direct hardware access.
I would demand access to the physical box for two reasons:
1) It is a security threat, you need to be sure that what they have done is not going to compromise your host. One of the main reasons of having a dedicated server is that you have total control so you can secure the machine and configure it according you your requirements.
2) To verify that they are indeed doing what they say they are, it all sounds a bit dodgy to me.
Edit: This is not a KVM by the way... a KVM is a physical feature of the server that provides a virtual keyboard, video and mouse interface that allows you to use the server as if you are physically sitting on it. That means you can reboot and configure the bios over the internet if you want, ore recover from a critical failure, etc.
Edit 2: Also if there is a hardware failure, say one of your disks, they can decide not to replace it for as long as they want (ie, lazy, cost saving etc) and you will never know as the RAID configuration will hide the problem from you. This means that you will loose your redundancy for who knows how long.
Edit 3: Security is a problem here also because you dont know if they are keeping that virtual layer up to date and patched with the latest updates, your VM may be 100% secure, but could be back-doored via the (and I use this term loosely) "Virtual KVM".