Merge differencing and parent vhd into new vhd

Differencing disks are a way to "branch" multiple VMs starting at the same place. You set up a disk exactly how you want it, and then start moving forward with a "difference" disk, which literally keeps the differences between the base disk and your changes.

The problem is, you have to "freeze" the parent disk. If you make any changes to the parent, then the difference disk is toast. Most people will at least mark a parent difference disk as read only (or, even better, use security to prevent anybody from writing to the disk).

Once you've messed this up, there's no going back. All children are unusable. Unless you have a backup that can restore the parent disk to its original state, you're out of luck.

VHDs are simply virtual hard drives, as the name suggests. I can't see why it matters where or how they were created.

In fact, this link talks about why it should be working.

EDIT: Have a look at disk2vhd from SysInternals.