Virtual hard drives in Virtual PC 2007 get the "VHD" extension. VMC's (the virtual machines themselves) can be associated with up to two VHDs. Here, we named the VHD file and set it's size. Even though it indicates a size of 65GB, that's not the size we picked. We went with 12GBs.
For David Berlind's write-up on The Virtual PC 2007 Installation Sequence, see his post
in ZDNet's TestBed blog.