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I asked previously if there are good reasons to partition disks on Windows, and one of the big ones was for splitting data and OS. So that should you reinstall, you do not need to worry about the data (i.e. the partition with the OS gets wiped, while the data one remains).

Windows 7 allows you to have a VHD (virtual hard drive) file as a drive in the OS natively. My thinking is that you now have one partition and you create a VHD with the data on it. That way moving from machine to machine or reinstalling you just need a copy of the VHD. You could have two partitions still and dedicate one for the VHD, which gives a best of both scenario.

Is there any pitfalls or issues that could occur in this scenario?

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First pitfall/issue - there's no support for VHD files in most third party products. For example, if you get a virus and you need to boot from an antivirus CD, the antivirus software won't scan inside the VHD. You'll scan, clean up the hard drive, and then when you reboot into Windows you'll still have the virus.

Next - backup images are going to be more complicated. If you use something like Acronis TrueImage for backups, you have to make sure to back up the contents of the VHD, not the VHD itself. The VHD's timestamp will change every time you use it, and so to backup software, it'll look like a huge file that has to be recopied to the backup every single time the backup runs. In reality, only a few files have changed inside the VHD, and you only need to back those up.

Next - you said "when reinstalling you just need a copy of the VHD" - imagine that your next OS isn't compatible with the disk partition style you chose. You have to copy the VHD off to another drive (like a USB drive) and then copy it back. Why hassle with that when you could just partition and keep it separate and stable? If you have to copy it off the drive anyway, you can use any partition imaging software like TrueImage or its open source clones to copy the partition to an external disk.

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About the first pitfill, you could just boot WinPE, mount the VHD and run the scan from the Pre-Execution Environment... not as easy as booting a cd though ^^ –  Oskar Duveborn May 18 '09 at 13:13

Pretty much the same as virtualizing servers I'd say.

A lot of things get faster, better and easier like disaster recovery and re-installation as you say.

The things that get annoying of course is that you lock yourself into the format. If you dual-boot Linux or some older Windows you might have trouble mounting the vhd (though the format specification is pretty open I think and manual mounting tools exist for other OSes).

Another thing that hit me is, you want to mount a vhd as a data partition - for this you actually don't need Windows 7 - as the new feature is actually booting off a vhd. Just mounting and using them as disks shouldn't be a problem with earlier operating systems either.

I remember having a Ghost image mounted for a while which was pretty useful albeit slow. Vhds should have about the same speed as a native partition.

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I wanted to give a shout-out for doing the opposite.

I'm installing Windows 7 into VHD's on my test machines, but keeping my data (by changing the default location of the C:\Users... folder) out in the physical NTFS partition. Then I can boot different operating system instances and have a common shared area that's accessible to those different instances (though I'm not trying to share entire user profiles between instances of Windows... that would take some trickery unless I was using a domain user account).

My data is sitting comfortably on an NTFS partition on the raw block device where it's easy to get at, but there's a clear separation between the OS and the data.

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