Shadow,
First there is no problem (or recomendation against) running the VSM on a VEM it manages. You can either use 2 uplinks for your DVS and simply host your VSM's virtual interfaces on the DVS iteself, or you can opt to maintain a separate vSwitch to run your VSM on.
I personally prefer the 1st option as it's one less point of management. Properly configured the VSM will have no issue running on the DVS. There are countless posts on here detailing the caveats and best practices for doing so.
Regards,
Robert