I believe that this is an OS X problem, not a VMware problem, but it's something to be aware of because it's ugly.
I used the OS X Disk Utility to create some 30GB "MS DOS" partitions on an external firewire hard disk, used BootCamp to boot to XP, copied a slew of virtual machines to the external HD, then booted to OS X.
I tried running a VM from the external drive. Everything seemed fine, then I started getting errors about "Argument list too long (7)" --- it looks like they were coming from OS X, but it crashed the VM, and Fusion shut down the VM after letting me know that things went south.
When trying to copy the VM from the external HD to the internal HD, I kept seeing errors saying "Argument list too long" from both cp and rsync when they reached the end of the files. (The files are ~1.5GB and 0.5GB in size). I finally wiped the files from the internal HD, and did a cp -p from the external HD to the internal HD.
$ cd /Volumes/UNTITLED 1/vmware
$ ls
mail iti-lcs-dev iti-lcs4-install iti-winxp-dev dhcp dns-master dns-slave01 dns-slave02
$ cp -p mail/* ~/vmware/mail/
cp: mail/data-00-s001.vmdk: Argument list too long
cp: mail/Mail-s002.vmdk: Argument list too long
$
I saw that the file lengths looked OK, crossed my fingers, and started the VM.
The guest OS (CentOS) was cranky, but I was able to get it to come up. So far it looks fine running off of the boot partition of my MacBook Pro.
Like I said, this looks like an OS X problem, but I thought that people ought to be aware of what seems to be a really nasty gotcha.
