Here’s a quick how-to work with .VHD files in Windows 7  used by Virtual PC, Windows Server 2008 R2 and Hyper-V. Let’s begin with a Windows 7 beta 1 install.

Fire up a Command Prompt: diskpart – Note: Press ENTER after each line to execute the commands.

You’re now ready to create a blank .VHD file. The following command creates a 16GB VHD file in a folder called virtual (you can put the .VHD anywhere, but create any folder in advance): create vdisk file=c:\virtual\win7.vhd type=fixed maximum=16000. It’ll take a few minutes for the .VHD file to be created. Diskpart will tell you once it’s done.

Full Article