Create a VHD (under WinXP)

I have a situation where I need to deploy hundreds of thousands of files (~700Gb in 100k files), putting these files onto a machine takes more than 24 hours. The little files and directories being the problem.

I need to deploy this information to 35 machines and may need to do this monthly – at a remote site but one that is isolated/secure, so a physical presence is needed.

One thought I have is that I can generate a VHD containing these files and mount the VHD (Virtual Server 2005 R2 SP1 comes with a mount-driver). This will mean that my copy operations should complete much quicker. Now I need to experiment/benchmark my theory.
This is not a virtual-machine environment, the VHD will be a virtual-drive on the host OS.

So, I know how to mount the VHD, how do I create it in the first place?

I know this is possible in Windows7 but it isn't my target platform!