It can deploy software virtually. Let's say you create a Software Resource that includes the necessary .msi and associated files for Adobe Reader X. You've tested it and it works as you expect. If you then want to deploy this as a virtualized application, you can do so by checking a box. For example, if the Software Resource was part of a Managed Software Delivery policy, you could find this option under the Policy Rules/Actions bar, under the Policy settings tab, under 'Software distribution options.'
If you check the box here for 'Install this policy's software into a virtual layer,' it will install it in a virtual layer if the targeted computer has the Software Virtualization plug-in installed. If the targeted computer does not have the plug-in installed, it will install it normally -- in the physical layer.
Is this the option you were thinking of?