I've been writing a lot about this topic lately (for example: Here and here), so I'm kind of surprised that Long's post about VHD (Virtual PC/Virtual Server/Hyper-V Virtual Hard Drive) support in Windows 7 doesn't mention the all-so-crucial point of why this is happening. Which is that Microsoft will provide backwards compatibility in upcoming Windows versions, including Windows 7, via a combination of Virtual PC, Kidaro, and SoftGrid technologies. Long quotes a Microsoft job posting that provides the following information:

Do you want to join the team that is bringing virtualization into the mainstream? In Windows 7, our team will be responsible for creating, mounting, performing I/O on, and dismounting VHDs (virtual hard disks) natively. Imagine being able to mount a VHD on any Windows machine, do some offline servicing and then boot from that same VHD. Or perhaps, taking an existing VHD you currently use within Virtual Server and boost performance by booting natively from it.

Do you want to have the opportunity to work on a great Core OS team at the heart of Windows? If you have big ideas and want to implement them, if you love writing code, if you love delving into operating system internals, if you want to work on high visibility projects with direct consumer and customer impact and still work in a very technical environment, then you will feel right at home in this team.

Virtualization technology has been a great success with Virtual Server and Hyper-V. With native OS support on the horizon it will become an even greater hit. Our team is making this a reality in Windows 7. Consider the simplicity of backup using a VHD, or the portability of a virtual disk backed by a single file. These are a few reasons why this technology is poised to be one of the greatest features in Windows 7–come help us achieve this goal.

And by the way: This is absolutely going to be one of the "greatest features" in Windows 7, given the real or perceived issues people have had with compatibility in Windows Vista.