Hi! thanks for the prompt reply guys!
I got green light on messing with the server to see what's up with it and what did the IT guys do to it. Here's the deal:
Its got an LSI ServeRAID M1015 SAS/SATA Controller, with 3 500GB (SCSI? it looks similar to SATA but without the separation between power & data) HDDs in RAID 5 (so it makes up a 1 TB drive, or so it says). It does not have battery cache (according to LSI config app) so I assume there's no write cache. I also saw some weird settings on the BIOS so I decided to fix them up (IDE/SATA working as Compatible instead of Native, no Vt-d) and do another test.
Here are the answers to your questions:
How are you installing the OS - via ISO or physical media in the host?
ISO on Datastore 1
Are all (or any ohter) operations slow, or is it just the install of the OS?
First time we got reports on everything slow as hell. The server was remade and nobody has whined about it yet, but OS install is (was?) painfully slow. Well, compared to my desktop PC...
What disks are in the RAID array - is it all local storage?
500GB x 3 in RAID 5.
Have you verified that all components are at the required firmware levels, as specified in the HCL?
The HCL only mentions to call IBM, according to this: http://www.vmware.com/resources/compatibility/detail.php?deviceCategory=server&productid=14358&deviceCategory=server&partner=43&releases=76&keyword=system%20x3650&page=4&display_interval=10&sortColumn=Partner&sortOrder=Asc
Also, I went to the virtual drive's settings in LSI app and "Cache" was on NoChange, I set it to Enabled just to make sure I enabled some kind of cache in an attempt to help.
Well, any suggestions & ideas are welcome! I took a bunch of pictures of the BIOS & LSI settings in case you guys need more info 
Thanks in advance!