>>One simple way to achieve that without a VHD is to use the SUBST command: http://en.wikipedia.org/wiki/SUBST
>>
>>In your case you could create a folder C:\DDrive where you put stuff you want to put on D:. You can then use
>>

>>SUBST D: C:\DDrive
>>

to map the drive letter D: to that folder.
>
>Yes, that's right. The old DOS command. :)
>
>I have Windows Explorer showing me now Local Disk C: and Local Disk D: despite the fact that one is virtual. This is exactly what I want. I was just wondering if that could be a potential venue for latency if I would have put too much disk space availability on such technology. But, so far, it seems to work ok.

With mechanical hard drives, as they fill up they slow down because de facto average seek time goes up. Your ultrabook probably has an SSD so that's not a factor for you.

The question in my mind is whether Windows is able to disk-cache part(s) of the VHD rather than the whole file. My guess is yes, I believe disk caches work on a block/cluster basis so it should be able to cache only those parts of a VHD that are actively being used.

There is some VHD performance information at download.microsoft.com/download/0/7/7/0778C0BB-5281-4390-92CD-EC138A18F2F9/WS08_R2_VHD_Performance_WhitePaper.docx . According to the tests the performance of VHDs is about the same as raw disk. It looks like there were some performance issues with Server 2008 that were addressed in Server 2008 R2. I imagine Windows 8 also does not have those issues.

All that said, there is extra overhead accessing the contents of a VHD compared to physical disk. The Microsoft paper shows little performance hit, but that was testing against mechanical hard drives with caches purposely disabled. In those tests there is plenty of time for CPU/RAM to handle the overhead while the disk heads seek. SSDs have much higher IOPS than mechanical so VHD overhead will appear to be a higher percentage than it would with mechanical drives. It might be interesting to run some IOPS/performance tests on your C: and D: drives; ideally they should be identical so that would give you a direct idea of the performance hit of using a VHD.