You could also try:
1) Attach (mount) the vdh using Disk Management
2) Shrink it to a size less than the target HDD
3) Image the (shrunken) mounted drive with free Macrium Reflect
Tutorial: Imaging with free Macrium
4) Download and burn the pe image restore ISO and burn the boot CD/DVD as described in the tutorial.
5) Restore to the new HDD
6) If the PC doesn't boot then make sure the partition is active and run the Repair option from the system repair boot CD
3 times, booting each time.
NOTE: This assumes you were able to make a valid image from your failing HDD.