When I initially worked with Virtual Server, I used default configuration. That caused me some trouble, as I started creating new virtual machines, my system drive started loosing space. I had to move all those virtual machines and their virtual disks manually to another location to release some space. Then I had to add those machines again, after doing what I should had done earlier.
You can avoid this problem by settings these paths after installing Virtual Server. There are two paths associated with Virtual Server.
Virtual Machine configuration folder: this is where virtual machine configuration files, virtual hard disks, undo disks would be stored for each virtual machines.
Search paths: These are additional paths, where you can look for existing virtual machines, virtual hard disks, undo disks, any ISO image files (.iso) that you can use later on.