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...of using a VHD is that it is easy.

You simply create a file rather than a repartitioning your hard disk.
When you are done with it, you just delete the file, no repartitioning.

Of course, repartitioning your hard disk in Windows 7 is a lot easier than it used to be, thanks to the new features in Disk Manager. However, it is a bit more time-consuming.

So really, choosing a VHD over a partition boils down to whether or not it is available in your version of Windows 7 and what you feel more comfortable with.

(Booting from a VHD is only available in Windows 7 Ultimate and Enterprise)