To resolve this issue, you must disable Proxy ARP on switches, firewalls, and routers.
For more information, see Cisco's IP Addressing Services documentation on
Proxy ARP.
Note: A good way to determine this is to find a virtual machine on the same vSwitch, and run arp -a. If there are no entries for the virtual machine experiencing the issue, make sure it is disconnected from the network, and then attempt to ping it. On Cisco Routers the Proxy ARP is enabled by default. But if HSRP (Host Standby Router Protocol) is enabled on the router then Proxy ARP is disabled automatically. Make sure you verify the settings for both on the Cisco Router and follow the vendor's guideline for desired configuration.
You should not receive any responses however if you run arp -a once more, you may see the IP address show up in the list with a MAC address (not necessarily the MAC address of the virtual machine). This means there is a device on the network that is responding on behalf of the machines, based off learned MAC addresses (Proxy Arp).
Note: The preceding link was correct as of June 25, 2011. If you find that the link is broken, provide feedback and a VMware employee will update the link.