The Microsoft® virtual hard disk (VHD) file format specifies a virtual hard disk, which is encapsulated in a single file and capable of hosting native file systems and supporting standard disk operations.
In Windows® 7, a VHD can be used as the running operating system on designated hardware without any other parent operating system, virtual machine, or hypervisor. You can use the Windows 7 disk management tools (the DiskPart command-line tool and the Disk Management MMC snap-in) to create a VHD file. You can deploy a Windows 7 image (in .wim format) to the VHD, and you can copy the VHD file to multiple systems. You can configure the Windows 7 boot manager for a native or physical boot of the Windows image that is contained in the VHD.
Furthermore, you can connect the VHD file to a virtual machine for use with the Hyper-V role in Windows Server 2008 R2. Native-boot VHD files are not designed or intended to replace full-image deployment on all client or server systems. Previous versions of Windows do not support a native boot from a VHD, and they require a hypervisor and virtual machine to boot from a VHD file.
The VHD Getting Started Guide goes into a ton of detail on how to create, deploy and use VHD’s. This guide is definitely a keeper. Go get it @ http://www.microsoft.com/downloads/details.aspx?displaylang=en&FamilyID=d2afacbb-5af6-45c2-b275-932116e27b0b.