I've been biasing towards VMs myself just out of caution, but maybe that's just extreme paranoia.

The way I look at it is similar to how I'd look at any hypothetical employee. How do I ensure the agent only has access to the minimum possible they need to get their job done?

That means no access to git repositories (no pushes on my behalf means it can't accidentally nuke git history, something there is anecdotal evidence of agents doing). It can make local changes in git only and I will take responsibility for pushing them. No access to the wider internet beyond what I deem acceptable. No permissions to access any internal APIs except what I provide (and not using my credentials).

In one case, I have a tool that has a set of dangerous commands alongside a large number of safe ones. I don't even have it installed in the agent's VM. I run an MCP that is a simple python wrapper around the tool on the host side, and expose it to the agent in the VM, so that it can only possibly run a strict safe subset that I can trust it with access.