You are getting very close to having it nailed. Yes, VMware can only use the hardware that Linux has access to, but in the Virtual machine it will be presented as a standard piece of hardware. For instance, no matter what type of network card you really have, VMware will present it as a specific model of AMD card. And it is pretty slick how it creates a virtual IDE or SCSI hard drive. When you set up a default virtual machine (VM) the hard drive will be a 4GB IDE disk (this disk will be associated with a "single" file on the Linux side of the house). And the size of the drive is adjustable in the VM setup, along with the amount of RAM you want to give to the VM, what other devices you want to be "enabled" etc.
When you boot up the VM you will see the memory count up, you will see that it has detected a 4GB hard drive, you can press <F2> to enter the BIOS setup just like on a real PC and you will find that it is running a real Pheonix BIOS, menu driven (just happens to be in software rather than a ROM chip on a motherboard, but you and Windows can't tell that). In the BIOS you can do everything you can do on a real BIOS because it *is* a real BIOS, like setting drive boot order, etc etc. Now Windows will see the 4GB IDE drive and install just as if it were a real drive because it is a real drive as far as Windows is concerned. The beauty of it is the file associated with the Windows disk is only as large as the amount of data on the virtual disk. e.g. It will fdisk and format out the drive to 4GB in Windows where you install the OS, then you install whatever Windows apps you want, and let's say that only takes of 200MB of the 4GB disk. On the Linux side of the house, the file will only be 200MB. It will grow as you add software and data in the Windows VM.
Now, this all may sound like it would be very complicated to set up and use but I can't stress how easy this software is to use. The first time I used it I giggled like a little kid because up until that point I would have said this was impossible. Kinda like when that article came out about Dean Kamen's IT (Ginger, Segway, whatever you want to call it). The one (prior to the public revealing of Segway) where he showed the mystery device to his investors and they reportedly giggled with glee when they saw what it could do.
Now, VMware is also available for NT/Win2K so you *can* use those MS OSs as your "Host" operating system rather than Linux but there are some limitations in doing it that way.
One of the cool parts about it is that you can set up as many VMs as you want (providing you have teh disk space) running any number of Operating systems or multiple configurations of the same operating system, each VM takes up just a single directory on the host operating system (in my case Linux) with about 4 files in it's directory.
And once you have installed your guest operating system in it's VM, you can take the files created on the host filesystem and move to any other real computer running VMware and bring up your guest OS already configured the way you like and it will work (better than Drive Image or Ghost). As far as what the few VMware files are on the host operating system. Roughly one file is the guest HD, another is the config file, another is a RAM file if you use suspend features, and I think a log file. There are more features than what I am giving you in this but it really is a cool product. And you can try out an uncrippled version for free (30 days that is). I would not suggest trying it without a machine that has healthy resources though (the faster the processor the better, and the more RAM you have the better, and of course as much disk space as you need for all your guest OS and software).
[ February 15, 2002: Message edited by: VoidMain ]