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A few thoughts. Although I agree that a RAM disk is probably the fastest way to run a VM, I personally decided to use an SSD for some obvious reasons, e.g. less risk, no copying required, less expensive, ...
The reason why Workstation prevents you from creating a snapshot is safety. Since a snapshot can grow up to the size of the provisioed disk size, Workstation checks for a certain amount of free disk space. You can disable this check in the .vmx file (mainMem.freeSpaceCheck = "FALSE"), but I would not recommend it. Regarding snapshots, these are no temp files but files which grow in size depending on virtual disk activity. Placing them on another location (e.g. a HDD) wouldn't make any sense, as it would slow down the VM. All virtual disks in a snapshot chain are used! (see http://kb.vmware.com/kb/1015180)
Thanks for the helpful info!
I'll definitely try the mainMem.freeSpaceCheck = "FALSE". The VM won't change much after the snapshot.
Geez VMWare has ridiculously bad and unhelpful error messages. I thought it simply failed, I didn't realize the reason was due to a simple free space check.
Regarding the 2nd part of my post.
Having the option to put as much of a VM in RAM as possible will allow massive performance improvement.
They can just include a little warning saying "if your your PC or VMWare crashes or loses power, your data will be lost".
Thats fine. There is plenty of VM work that is not critical. for the 1/1000 times when something crashes and you have to re-do it, you'll be happy for all the other 999 times where it ran 10x faster.
Once you get the VM to a state you want to keep you just untick the box and it would then write the VM from RAM back to disk.
It should be something you can do on the fly.