After converting img to vmk, add it to the virtual machine. You need to set the disk size for each edit.
I dont understand your problem.
I downloaded the archive and checked it - the size of 700 mb is correct.
It contains 2 partitions:
1. 200mb : ext
2. 500mb : could not detect the filesystem
I also do not understand why you treat the img with a Converter.
It is already a perfect flat.vmdk.
You only need to create a vmdk descriptorfile to use it with a VM.