Howto compact a vhd file

1. First of all, install cccleaner. This tool is very usefull. It will remove all unnecessary files from your drive.

2. Defrag your drive.

3. From the CD menu, select Capture ISO Image and browse to the Virtual PC additions directory, which is %ProgramFiles%\Microsoft Virtual PC\Virtual Machine Additions by default.
Mount Virtual Disk Precompactor.iso. Click ok to allow it to prepare your drive to be able to compacted.
4. Unmount the ISO from the CD menu.
5. Finally execute the Virtual Disk Wizard from the File menu and compact your VHD file.

Do not forget to make it read only if you want to use it as a base disk.