The next major version of SquirrelMail (2.0) will be a total re-write, and is being written with virtual hosting in mind, but in the meantime, you are strongly advised to check out the [Login Manager plugin].
This allows you to use just one SquirrelMail installation but tweak its behavior in any number of ways for each of your virtual hosts, including setting different images on the login page and allowing users to log in with just "jose" when their real login might be something like "firstname.lastname@example.org". The configuration options are extensive, and include the ability to change most all of the options that are typically set using the conf.pl configuration script on a per-domain basis.
As a lesser alternative, you could install SquirrelMail in each host's web tree. Each installation is in the neighborhood of 3.5 megs. They will not affect each other, and it is possible to share the various directories (except it is a good idea to not share the 'data' directories), reducing the amount of space taken. The drawback here is that you then have to administer all of these installations instead of just one when using the Virtual Host Login plugin.
NOTE: There is a [simple patch] for enabling squirellmail to connect to the IMAP server that the user's account is hosted on when using something like vmailmgr and a single installation of SquirrelMail. Useful for shared web hosting providers, although this patch is not necessary if you take a closer look at the Virtual Host Login plugin and/or the Multilogin plugin if necessary (note that if you start patching the SquirrelMail core, you'll have a much harder time upgrading when new versions of SquirrelMail are released... this patch, in fact, has not been updated since SquirrelMail 1.4.0).