Do you still get BSODs? If so, listen for a clicking sound from your hard drive.
This should help with your question about the size of the virtual machine hard drive:
Windows XP Mode.vhd size too big!?
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Sorry for the delay...I had to find disc space to clean up just so I could launch my virtual drive. I am not getting any more BOSD's (thanks goodness). I ran the VHD compacting procedure (thanks for the link!) but checking my VHD, it still has 126 GB allocated to it. If in the settings tab I change the "virtual hard disk file" to none would that remove the VHD from my actual HDD space?
A random side note, but I tracked down a lot of data that wasn't registering via WinderStat in the folder C:\Windows\System32\config\systemprofile\AppData\Local\Microsoft\Windows (60BG). I was able to use unlocker assistant to remove 12.5 GB and stopped the deletion process since the files are truly hidden (not even with "show hidden files" checked did these files show up) so I didn't want to risk crashing my system. Anyhow, I have a enough free space on my HDD to be operational, so any thoughts on the next best step would be much appreciate.
Thanks for all of the help so far!