The attack could compromise other servers yes. I think the scenario you describe is a possibility, although there are some technical feats that would make wide-scale exploitation difficult - you need to know what you want to modify ahead of time which would be difficult.

Virtualised environments that don't pass the vendor specific commands should be immune to the attack though. As others have said, encryption would probably allow tampered pages to be detected. I'd be interested to see if the modified firmware could ignore new firmware...