On the Windows side the VMware Converter may also be an option. You can convert an existing VM(Virtual Appliance) from your local disc, by selecting it as your Source/Source Type and then in your destination settings adjust the New Disk Space — you'll see a difference between Maintain Size and Minimal Size. I was able to shrink from a 29G to a 7G VM, after I deleted a lot of unwanted files from the initial conversion. It has worked with W2k, XP and Ubuntu 6.06 VMs for me.