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Here is the procedure to compact your VPC file, I had one VPC whose orignial size is 37 GB but after compact it goes down to 27 GB.

1. Start the VPC
2. Click “CD” and “select Capture ISO image”
3. there is an iso under C:\Program Files\Microsoft Virtual PC\Virtual Machine Additions\Virtual Disk Precompactor
4. run the compaction prep
5. Shut down the VPC after Prep completed
6. Go to the settings, select the hard drive and run the hard disk wizard, in that wizard you can choose the compact

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