Create a VHD File

Steps to create a VHD File:
1- Install Windows 7 on your machine (Host OS) .
2- Boot your machine with Windows Server 2008 R2 from a DVD or USB.
3- At the welcome Screen, Press Shift + F10 to enter the command prompt.
4- Type diskpart and press enter.
5- Creatae a VHD File => create vdisk file="c:\WinServer2008R2.vhd" maximum=25000 type=fixed and press enter.
    **type = fixed or expandable (For development enviroment Fixed is better because the I/O will be much faster than expandable)
    **maximum = Size of VHD file in MB
6- select the VHD File => select vdisk  file="c:\WinServer2008R2.vhd" and press enter.
7- Attach VHD => attach vdisk and press enter.
8- Exit diskpart => exit and press enter.
9- Close the command prompt and continue in installation.
10- Choose your new VHD (will appear as a partition) to install your Windows Server 2008 R2.

I am running SharePoint 2010 smoothly now :)

To Manage your boot menu in windows 7.
Use the command bcdedit.exe, from command prompt, but you need to run it as administrator.