Just released on TechNet is Disk2vhd, which is designed to create .vhd image files from physical hard drives. Like many other Sysinternals apps, Disk2vhd is tiny, free, and fully portable. It's also available on live.sysinternals.com so you can run it right over the internet should you forget your trusty flash drive at an inopportune time.
The tool is dead simple to use: launch the executable, browse for a destination, choose which physical drive you want to image, and click create. Disk2vhd creates a snapshot that you can then mount in Virtual PC or HyperV, or as a virtual hard drive on a Windows 7 system.
Disk2vhd is compatible with Windows XP SP2 or newer. One word of warning: images over 127GB are not bootable in Virtual PC, so keep under the limit if that happens to be in your plans.