You might have luck using 'g4u' from http://www.feyrer.de/g4u/. This is freeware, and I was able to successfully migrate a real Win98 machine using this, as per my recent post.
If Virtual PC can see the hard disk you're interested in copying, but you can make VPC actually boot from the CD image of g4u instead, it should work. In Parallels, this involves appropriately setting the "boot from" order...I assume VPC does something similar.
Last edited: Apr 30, 2007