When RTFM is not enough
It was a fun experience downloading Invrituse's VM-Compacting solution, installing it, running it for a couple of hours on one of my VPC images, wait quite a bit, and only then realizing that even though you can run the VM Compactor from within the running hosted operating system, the final step you need is an external one - using the Virtual PC Virtual Disk Wizard-Compact Disk, which does not run on differencing disks!.
All that effort for nothing.
Invirtus would be very wise to put in on one of its top level headlines a big red line saying don't use our product on differencing disks, since you'll have to merge them with the parent disk before it can actually save you some space(which negates the whole idea of diff. disks..)
So what *can* I do?
Luckily, there is another partial solution to this problem, which turned out to save me lots and lots of disk space: I put the parent images of my VPC into compressed NTFS folders. How much disk does it save? well, a standard 2GB sized image lots weight to around 300MB on disk. All by right clicking on the folder-> advanced->compressed folder check box.
Don't do it on the actually diff. disk VPC, just on the parent disks, though, for perf reasons.
A workaround for differencing disks?
The Invirtus folk have a different solution for using differencing disks. a "workaround" if you will, which is weird but seems to work. basically, you rename your *undo* disk into a "vhd" extension file, and it works just like a differencing disk, but without the official title for it. What does that give you? not sure. haven't tried it. but perhaps it allows compacting it unlike the "real" diff. disks.
Let me know if you have an answer..