I may already have the answer, but i'll ask anyway. It seems that I can not remove serial ports or the usb controller for a VM machine. The remove button is greyed out. Is it because I have to shut the guest OS down before removal?
Yes it is.
That is correct - you must shut down the VM to remove most things if not all from a VM -
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In vSphere 4 this becomes less of an issue. It supports hot add/remove of many different hardware devices, though I think serial ports still need to be removed with the VM powered off..