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Picking out your virtual hard disk type
On this screen, you're presented with a wide range of VM virtual disk formats. Just use the top choice, VDI, here and move on to the next screen.
Deciding between a static or dynamic virtual hard drive
Your next choice, whether to give the VM a dynamic or static disk, is a more serious question. If you give it a dynamic one, it will never run out of space so long as there's still room on your hard drive, but it will run a little slower. A fixed size means just that, you won't be able to add more disk room easily. On the other hand, it does tend to run a bit faster. Since I'm not likely to be adding new programs to my XP VM I usually elect to go with the faster static drive.
Setting your virtual hard drive size
After this you need to give the new drive a name. I chose to give mine the shocking original name of XP and give it 20GBs of space to work with.