I’ve been stuck a few times over the last few years when using a VPC and running out of HD space. The solution at the time was always create a new HD and start filling that up. This tool solves this problem. Check it out here.
Also check out these article for organizing and optimizing your VPCs.
HOWTO: Use Virtual PC’s Differencing Disks to your Advantage
How to use virtual PC and still save lots of room: differencing disks