You should read up about the various types of disks. These are covered
in the VPC Help, and at the FAQ site:
  http://www.robertmoir.co.uk/win/VirtualPC2004FAQ.html

Question 5.6.

As has been discussed numerous times, to maximize performance, put your
VHDs on a separate spindle from the Host OS. You will also want to use
Fixed Size disks with no Undo files. Of course this takes a lot of
drive space and doesn't give you any option to back out if something
gets messed up.

Scott

If installs take forever, you may want to check these two things:

VPC Performance options: Make sure "run at maximum speed" and possibly
"divide time equally" are selected. If the option "run at maximum speed" is
not selected, the guest will run much slower, in order to give the host more
responsiveness for local tasks.

Install media: It can in some cases be faster to install from an ISO image
instead of a physical CD. If the CD-ROM is slow and the performance option
doesn't fix the speed problem, you might want to make an ISO image of the CD
and mount the ISO image instead of the physical CD.

If the VHD file is *badly* fragmented (externally) you might want to
shutdown the guest and run the built-in defragmenter to defrag the volume
the VHD file is on (on the host)...