It's not typical & not recommended by Microsoft.
Quoting MS KB Article 304261:
Microsoft generally recommends that
you use a Storage Area Network (SAN)
or locally attached disk for the
storage of your Microsoft SQL Server
database files because this
configuration optimizes SQL Server
performance and reliability.
It's not recommended so much that you need to set trace flag 1807 for SQL Server to allow it.
Dynamically expanding VHD's will another level of fragmentation at the VHD file level. It also means that your server/database may crash if you've over-sized the disks and run out of space on the physical drive.
For database files I would use drives that are:
- Directly assigned
- iSCSI drives
- Worst case scenario I would least
pre-allocate disk space