With Windows 7, you now have the option to boot the OS from a VHD, a virtual disk file, instead of a partition. This way, you don't have to reconfigure your hard drive partitions.
Limitations: Hibernate is not supported.
Here are the simplified instructions:
1) Start Windows 7 installation from DVD.
2) Press Shift+F10 to start the command prompt.
3) Start diskpart.
4) Use the "create vdisk file=D:\Win7.vhd maximum=xxxxx" to create a virtual hard disk. Choose your drive and filename accordingly. xxxxx is in MB.
5) Type "select vdisk file=D:\Win7.vhd".
6) Type "attach vdisk". You will get a confirmation that it was attached.
7) Type "exit" to exit diskpart. And then close the command prompt.
8) Click on "Install Now" and install as you would normally by clicking on "Custom Install". Choose your attached vdisk as the location.
The installation takes care of adding the boot option to bcd. You don't have to do anything
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