HOWTO: Reducing virtual disks nominal size manually
http://www.vmware.com/community/thread.jspa?threadID=47672
a much simpler way IMO is to
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Dump an image of your VM to DVD or another file by using acronis, ghost, selfimage or whatever. Provided you have networking enabled you can dump your image to a network file from within the VM itself if you want to — although on restore you'll need a bootable recovery disk and network access.
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Delete the VM from disk.
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Define a new VM with the disk size you want
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power on a VM with a copy of PARTED / Partition Manager/ a BartPE disk
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create your partition with the actual disk size you want the VM to "See".
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restore your VM using whatever software you used to dump the image with.
documented on: Jul 11, 2006 by jimbo45