Windows 7 has the ability to mount and boot to Virtual Hard Disks. Although Windows 7 has such features, they aren’t the easiest to use. I’ve created an application that automates mounting, un-mounting, adding the VHD to the boot screen, and removing the VHD from the boot screen.
There are some caveats, like requiring UAC to be disabled and that you have to create the VHD yourself. I could automate VHD creation, but I didn’t want to make a GUI when Disk Management does a fantastic job.
Some notes, to boot to a VHD you need to have an operating system installed on it. This can easily be done using Virtual PC beta (the Windows 7 version of course).
To mount a VHD, simply double click it. Un-mounting should be done by right clicking the VHD and clicking “Un-mount'”. To add a VHD to the boot screen, right click the VHD and choose “Add to boot menu”. To remove it, right click the mounted drive and choose “Remove from boot menu”.
Update 10/13/2009: Booting from a VHD will only work with Ultimate and Enterprise editions of Windows 7 or Server 2008 R2 installed in the VHD. You cannot boot operating systems other than Windows 7 or Server 2008 R2. There is a new version of VHD Mount available here.
Screen Shots: