One of the areas where Windows Server 2008 R2 improves on the performance of Windows Server 2008 is dynamically expanding disks, which have been optimized in R2 to reduce the performance penalty. However, fixed-size VHDs are still recommended for production servers.
The New Virtual Machine Wizard in Windows Server 2008 R2 can create a “typical” Virtual Machine (VM), but the default settings are not appropriate for production environments. If you use the wizard to automatically create a new virtual hard disk (VHD), it will create a dynamically expanding VHD file, which is nice for only using the space you really need, but imposes a performance penalty as it has to periodically expand the disk space.
A better option is to use the New Virtual Hard Disk Wizard to create the VHD file before you create the VM, allowing you to specify a fixed size or pass-through disk for optimal performance.