Looks that shrinking of VMDK do not reduce volume size in guest OS (Windows).
Run diskmgmt.msc in Windows and then reduce size of volume(s).
POCEH, thank you for the suggestion; i have already shrunk the C: drive from 240 MB to 140 MB, but do not see that i can specifically shrink the volume in diskmgmt.msc on which the C: drive is located.
i also followed the directions on this KB article: VMware Knowledge Base , and while everything went well, the VMDK did not shrink and still report 240 MB.
Thanks again for your help.
If I remember correctly, there was some issue when shrinking was involved via Workstation UI, while command line worked. I.e. run "vmware-vdiskmanager -k <path_to_vmdk>". Not sure whether how this is this with Fusion but there is a good chance it is quite similar
If you want to go with Converter, you can still do that by installing it in the Windows VM you want to shrink and converting 'this local machine', though the process will be lengthier. See if this can help: VMware Knowledge Base (and never mind it reads 'physical machine', the process is the same with a powered on VM).