You can create dynamic VHD files that will gradually grow towards a maximum size. Do they shrink as well? And if they don't, can you make it shrink back down to whatever size it actually needs to be at the moment?
2 Answers
No they do not shrink by themselves, but you can shrink them manually.
Remember to run the pre-compactor tool before shrinking it.
In Hyper-V you shrink it from the disk settings dialog. If you're not running a virtualization suite I'm not sure how you are suppose to do it though - but there's a tool called VHD Resizer that might help.
Might be worth looking at this similar question with 5 or six answers. I suspect you can ignore the one about 'putting it in the dryer'.