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(1)It is possible to "convert" a physical machine to a VM; VMware has a tool to do that automatically. It creates a VM image using the physical machine as a template. You'll probably run into MS licensing problems with that though, for XP and higher. You can probably also use Partimage to create an image and mount it; not sure how as I've just used the automatic tool in the past. I'm not currently doing that anymore.
(2) You can also configure VMware to boot the logical partition directly and not have two versions. You have to make a separate "hardware profile" in Windows to avoid problems if you do dual boot, and you'll have only to run the dreaded Microsoft authentication one more time after you've added the new "virtual hardware" (graphics drivers etc.) You lose some of the advantages of the VM this way though, you can't just make a copy, use it to install software, have it trashed by a virus, erase it and load a fresh copy. It's also a bit dicey, so make sure you have a backup and it's a bit slower than dual booting. You might have some problems with hardware compatibility with some external devices, as they'll have to be supported by the underlying Linux.
Unfortunately, for XP and higher, for the best hardware support, and for speed and security, dual booting is probably superior.
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