Creating Virtual Machine From folders

"What you need to do is to create a bootable ISO image of your Windows Server 2003 installation disks. Then, create a virtual machine in Virtual PC 2007. As soon as it starts up, go to the menu bar, drop down the ""CD"" menu and select the command ""Capture ISO Image"".

This will get you a File Open like dialog box. Point it to the bootable ISO image that you created earlier.

Ensure that your virtual machine is set to boot off the CD\DVD drive by going into it's BIOS settings, via pressing the Del key at boot-up.

Installation is then pretty much like it would be on a physical machine.

These same instructions work in principle for other operating systems as well, such as Ubuntu, etc. You would however need to change some settings for the Ubuntu installer before it would actually work.

In short:

Boot the virtual machine off bootable ISO disk image.
Run OS installer, normally.

Regarding turning a dump of an installation CD into bootable media, that bit might be a little tricky.

In the past, I have tried the following:

Get your hands on a similar Windows bootable media, such as a Windows XP CD, etc. It doesn't really matter which version.
Make an ISO image of it using a disc imaging software, such as WinISO. MagicISO, etc.
Delete the entire contents of the ISO, and replace it with the dump from your Windows Server 2003 folder.
Save the ISO.

Now you should have a bootable disc. What you are trying to do is to use the boot sector from the bootable media, which you don't have currently, because your installation is dumped into a folder. A folder is obviously not bootable. That is the missing ingredient that you need to get your hands on."