If you are able to boot your VM, please do the following:
Let's try to shrink your drive image with a utility included with VMWare Tools. Launch VMWare Fusion and make sure any snapshots are deleted. When you make a snapshot, it keeps track of everything that happened from that point so it will take up more room than normal. Start up your virtual machine and log in. Locate the VMWare Tools icon in the tray and choose Open VMWare Tools.
Go to the Shrink tab. Choose the C:\ partition if it isn't already chosen and click Prepare to Shrink. It will take some time to prepare then it will ask if you wish to shrink it. Choose yes and wait a little longer while it shrinks.If you are unable to boot your VM, do the following:
These steps are a little harder as they deal with using the command line. You will need to launch Terminal for this. Use the Go menu and choose Utilities. Launch Terminal. Copy and paste the following and press enter:
cd /Applications/VMware\ Fusion.app/Contents/MacOS
For this next command, you will need to know where the .vmdk file is. It is located in the folder you found earlier. After copying and pasting the command below, don't press enter as there is more to the command.
./diskTool -k 0
After this bit of text, start typing the following, pressing tab where you see <tab>.
should autocomplete what is in the folder. If it does not, press <tab>
twice and it will list what is in the folder. Start typing the name and press <tab>
again and it will autocomplete it.
Press enter. The line should look something like this (completed).
./diskTool -k 0 ~/Documents/Virtual Machines/Windows XP Professional.vmwarevm/*.vmdk