Virtual machine performance

Hi!
I have always used an expanding harddisk for Windows 98 Second Edition, but now as I try Ubuntu I have come to be a little bit confused. The file is cached in RAM so much free RAM must be good for performance, but what about using a plain file instead of an expanding one(assuming there is space left on the real harddisk drive)?
Which one gives best performance regarding loading and running an OS(ignoring the time it takes to install it)? Does Ubuntu or Windows make a difference in this case?