Native VHD boot enables a physical machine to be booted directly from a virtual hard disk (VHD) with no requirement for virtualization software (such as Microsoft Virtual PC or Hyper-V). Native VHD boot is made possible with the addition of a new mini-port driver within the Windows 7 operating system which is responsible for all IO operations to and from the disk. Earlier versions of the Windows operating system such as Windows Vista, Windows XP and Windows 2000 do not support Native VHD boot and therefore cannot be used to provide the capabilities described within this document.

With the introduction of native VHD boot, it is now possible to achieve a single image deployment strategy for physical and virtual machines alike. As long as the operating system that resides on the VHD is generalized and hosts either Windows 7 Enterprise, Windows 7 Ultimate or Windows Server 2008 R2 (all versions), it can be used in both environments.

See the blog post from my colleague, Michael Waterman for the complete Windows Native VHD Boot Deployment Scenarios Guide.