One real nice feature in Windows 7 is the boot from VHD capability. Real simple to do once you know the basics. And these basics are all covered in 2 blog posts by Scott Hanselman. So rather that repeat the information I am just going to point to his blog posts.
- Step-By-Step: Turning a Windows 7 DVD or ISO into a Bootable VHD Virtual Machine
- Less Virtual, More Machine – Windows 7 and the magic of Boot to VHD