Virtual Server 2005 is a powerful tool for testing, development, labs and education purposes. With Virtual Server 2005 you can setup a small LAN with a few servers and/or workstations to test applications, work through how-to guides or practice for your certification exams. I use Virtual Server 2005 for all my demos and all the screenshots you see on this site come from Virtual Server 2005 virtual machines.
Installing all these virtual machines can seem like a headache. How many times do you have to install the same OS before you get bored? Then once the OS is installed, what about the service packs, hotfixes, admin tools etc. It can take a while to install the OS and if you are building a lab with 4-5 servers it starts to get out of hand.
Virtual Server 2005 includes a type of virtual hard drive (VHD) called a Differencing Disk. A Differencing Disk is a disk that holds changes made to the base, or parent disk, without affecting the parent disk. You can use one parent disk for multiple servers that have differencing disks. When combined with Sysprep you can have a new virtual machine up and running, with all the service packs, hotfixes and tools, in minutes rather than hours.
To begin we need a fresh virtual machine. Install Windows XP or 2003, install the latest service pack, all the hotfixes and the VM Additions. If I am installing Windows Server 2003 I will also install Adminpak.msi, Support Tools, Resource Kit Tools, Systernals PSTools and Techsmith SnagIt. You may choose to install different tools and applications, just don't forget any! Once complete, locate Deploy.cab on the Windows install media and extract it to C:\Deploy.
Once Deploy.cab has been extracted, open up the directory and run Setupmgr.exe. Follow the wizard to create an answer file for a Sysprep image (it is important to choose the Sysprep option).

The wizard will ask you for all the information you are normally required to provide when you install the OS such as, license key, your name and the company name etc... Enter the appropriate information paying attention to the following options
Do not fully automate the install

Do not auto-generate a computer name and do not enter a computer name

The reason for this is to allow you to name the computer during the mini-setup which occurs the first time you start the new VM.
Once complete a file called sysprep.inf will be created and you can now run Sysprep.exe. Select to Reseal the computer. Sysprep will do it's thing and when complete shutdown the VM. DO NOT restart this VM now. On the Virtual Server 2005 Administration webpage, click on the VM name and select Remove from the drop down menu.

This will remove it from the administration webpage, but the files will remain. Open up the directory that contains the VHD file and mark it as read only.
Our parent disk is now complete. Next we will create the new VM using a Differencing Virtual Hard Disk.