I'll be showing you how to set up a virtual machine for testing in VMWare Workstation 7. Here are the text based instructions, if you prefer those:
1) File - New - Virtual Machine 2) Select the Custom (advanced) method 3) Select Workstation 6.5-7.x (or whatever you prefer) 4) Choose "I will install the operating system later" 5) Choose your guest OS (mine would be Windows XP Professional) 6) Enter the name and the location for your virtual machine 7) Set the number of processors and cores you want to use (1 in my case) 8) Set the virtual RAM you want to allocate (1024 MB in my case) -- take note not to extend the virtual RAM amount more than your actual physical memory 9) Choose the NAT networking 10) Choose "BusLogic" 11) Then "Create a new virtual disk" 12) IDE is recommended for XP, but SCSI would probably be for Windows Vista, 7 etc. 13) Set the amount to whatever you want (I chose 25 GB) 14) Select where to save the disk 15) Review your configuration 16) Once finished, hit on "Edit virtual machine settings" 17) Under CD/DVD, "use an ISO image file" and select your .ISO image for your operating system 18) Confirm that and power on your machine
--Snapshots-- Make sure to make a snapshot of when you have the machine set up the way you like. For example, install VMWare Tools, update the system and change the settings to your liking for optimal performance, and then press Command + M (or Ctrl + M) to bring up the Snapshot Manager while your machine is running. Click on Take a Snapshot and the current state of the machine will be saved. That way, when you do some sort of testing, and let's say your machine becomes unbootable or unrepairable, and you don't want to reinstall the OS, simply open the Snapshot Manager again, choose your earlier snapshot and revert to it, and ta-da! Your machine is back to its former glory!