No, not necessarily. If the inactive memory maps the contents of a file (program file for example), there is no need for OS X to forget this fact just to make it free. If the RAM is needed for something else it can take this inactive memory just as easily as if it was free.Inactive memory *should* be freed up, but for some reason OS X doesn't always.
Remember that inactive memory is available memory with known potentially useful contents. Free memory is available memory without useful contents; in effect it is wasted memory.
I don't think virtual memory really means much. The virtual memory numbers are more accurate in SL (in leopard, even the smallest programs had like 1gb), but activity monitor is showing my total VM size at 118GB.
There is nothing strange about your computer using 118GB virtual memory in total. This is just the sum of the defined address ranges of all processes. Many pages in a process is shared with lots of other processes (program code, or because the process has forked). Other pages are defined, but are not yet allocated either in RAM or in a swapfile (happens often when a process allocates memory and before actually using it).
You are right though that the fact that your computer uses a total of 118GB virtual memory doesn't mean much.