Hi Danny,
I recently tried using VMWare Player and their VMWare Converter to install a SPD image of a Win98SE system in a virtual machine. I could not make it work for some reason. I find the whole virtual machine thing rather confusing and really do not understand the process well at all. I gave up on VMWare because I wanted something free and I understood that their free VMWare Server could only be installed on a server OS, which I do not have. Anyway, I finally used Microsoft's free Virtual PC 2004 (there's a 2007 version out), created a blank virtual machine based on Win98, booted the SPD CD within that virtual machine and restored a Win98SE image to the virtrual disk. That all worked slick. Upon booting the 98 system, Windows found all the different hardware that was inherent in the virtual machine and installed everything automatically. I don't know how this would work with an XP or Vista OS in a virtual machine. Presumably, after the restoration, you'd have to run HIR on it from the VistaPE recommended environment in order to get it to boot at all. Of course, you'd have to have SPD installed (not necessarily activated) previously on the OS in the image for that to work. Activation/licensing may or may not be a problem with those OS's in virtual machines, I don't know.
Rod