Brent Strange (some dude I know from somewhere, heh...) discusses Virtual PC and the relative performance impact of using differencing, undo and fixed virtual disks. While there are many things one can do to improve performance of virtual machines, having a good, clear understanding of the performance characteristics of different virtual disk types is basic and fundamental. You can tweak all you want, but if you have a slow disk set up, you can only get so far.

A while back, Scott Hanselman also summarized some useful Virtual PC performance optimization techniques.

Virtualization capability is a terrific tool, but there are always tradeoffs. You'll sacrifice at least some performance for the convenience and flexibility you get with virtualization, but depending on your configuration and the specific purpose and requirements of the system you're setting up, it's often well worth the performance costs.