The new feature in Windows 7, named VHD Boot, allows you to boot your Operating System from a Virtual Drive.

A 20 minute video on the functionality, and how to configure it is available on TechNet. It walks you though the creation of a VHD file, the configuration of the boot sequence using bcedit and describes the limitations of this feature.

This scenario is also possible in some Editions of Windows Server 2008 R2

http://technet.microsoft.com/en-us/windows/dd758779.aspx