I think your best bet will to use Converter.
david
What are my options???
Yes converter. Although with Linux moving apps / data is easy, build the new VM with the size of disk you want, with both VM's running copy / move data as needed on the new Linux VM. Then you are done. The EXT filesystem may not always shrink correctly and you may have issues with converter, so if it doesn't your only option is to migrate the data VM -> VM.
We have PostgreSQL, subversion, apache, bugzilla running on this box so shrinking might be easier then moving data from one VM to the new VM.