Both Visual Studio Lab Management 2010 and Visual Studio Lab Management 2010 SP1 work with the Windows Server 2008 R2 SP1 hosts. Windows Server 2008 R2 SP1 includes new features such as dynamic memory, which are great for test labs. Dynamic memory increases the VM density and allows you to run more VMs on the same hardware.
In order to use the new Windows 2008 R2 SP1 hosts and features such as dynamic memory, here is what you need to do:
(a) Upgrade your SCVMM server from 2008 R2 to 2008 R2 SP1.
(b) Upgrade the SCVMM admin console on TFS Application Tier machines to SCVMM Administration Console 2008 R2 SP1.
(c) Ensure that every host group in SCVMM has hosts of only one type - Do not mix Windows 2008 R2 hosts and Windows 2008 R2 SP1 hosts in the same host group.
(d) You have to set the dynamic memory value on the template in SCVMM library before importing the template into Lab management. If you already have imported templates, use MTM to delete them from all team projects, set the dynamic memory value on the templates using SCVMM admin console, and then re-import them into MTM.
(e) Now, when you create fresh environments using these templates on 2008 R2 SP1 host groups, dynamic memory value will be honored. You will not be able to see the dynamic memory values from MTM. MTM would only show the startup memory. However, you can use SCVMM admininstration console to see the memory usage of VMs.