Bill,
You said,
"We are running our application and project from a VM . . ."
If you are referring to the RH application, that's not good.
But if you're referring to the application for which you are
writing help files, you can run that application anywhere you want,
because RH is totally unconnected with it.
Once you generate the help output files, those are the ones
that should be on the same server, if your manager wants it that
way.
The "best practices" are those you have already read,
recommending that RH and its source projects be kept on a local
hard drive, and not shared across a network.
As an exception, also covered on Peter's site, you can keep
the project files in a version management system on a network
drive, but you must check everything out to the local drive for
editing, and check them back in for version control.
Harvey