A. Server 2008 R2 adds the ability to boot a physical host from a VHD. It's fully supported to boot a host running Hyper-V from a fixed-size VHD, and it's a common architecture that can simplify deployment. (The free Hyper-V Server 2008 R2 also supports boot from VHD.)

It's not advised, however, to place VHDs for virtual machines (VMs) inside the VHD that Hyper-V boots from. You should place the VHDs for VMs on a SAN or volume outside of the booted VHD, such as a D drive that isn't virtualized.