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I need to shrink a VHD in place because almost all my system's free disk space is trapped in the unused part of the VHD. I can't use any of these methods because they all involve creating a new VHD file beside the existing one and I don't have enough free disk space outside the VHD to so so.

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How big is the VHD and how big is the total used space on it? A two terabyte USB hard drive might be a cost effective solution. –  Justin Dearing Aug 9 '12 at 22:00

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NTFS has built in disk compression. If you were to compact the VHD, and then compress the folder it is contained it, the free space would compress really well. To compress a folder you just right click on it in windows explorer and select Properties|General|Advanced|Compress contents to save space That is probably your only chance.

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