How to Install Windows 7 to VHD

Please try following steps:

1. Boot from Windows 7.
2. Select the language option, then click Next.
3. Press Shift and F10 simultaneously to open a command prompt window at the "Install Now" screen, Here  you partition the disks and create your VHD file in this window.
4. Use following commands to select the disk and wipe all of its existing content:
   
   diskpart
   list disk
   select disk 0
   clean
   
5. Use following commands to create a 200 MB system partition. Normally the Windows 7 installation procedures create this partition automatically.
   
   create part primary size=200
   format fs=ntfs label="System" quick
   active
   
6.  Use the rest of the space on the disk to create a partition. This partition will hold the VHD files.
   
   create part primary
   format fs=ntfs label="Boot" quick
   assign letter=C
   
7. Create a VHD file on the C drive. Here create a 32 GB file that is an expandable disk for example. Also you can use "type=fixed" instead of "type=expandable" to create a fixed-size VHD. A fixed-size VHD will use space on the physical disk equal to its full size as soon as the VHD is created but will give better performance, so I recommend fixed-size disks for uses other than testing.
   
   create vdisk file=c:\win7ult.vhd maximum=32000 type=expandable
   select vdisk file=c:\win7ult.vhd
   attach vdisk
   create partition primary
   format fs=ntfs label="Win7Boot" quick
   
   
8. Use following command to list your volumes.
   
   
   
   
   
   
9. Enter the "exit" twice to exit Diskpart and close the command prompt window.
10. Proceed with the installation. Choose the VHD partition you just created when asked to select the installation target. A warning shows that you cannot install it on the partition will occur, simply ignore it.
    
    
11. Installation normally run now. When the installation is finished, you can see the VHD partition is now the C drive while the partition containing the VHD files is demoted down to the D drive. If  check the drives contents, you'll see D contains the VHD file and C, the content of the VHD, looks like a standard drive with a Windows installation. The 200 MB partition doesn't have a drive letter and is invisible to the OS.