With my pearpc on winxp I just made a HD image of the size I wanted than used the compression that comes with NTFS to compress the drive. Had the same effect... Havent tryed this but does it use all the space at first? Id love to make a 10G image but I only have 4G free!
That is one problem using the NTFS compression, you need to free space, THEN you compress it...
With sparse files, you don't need all the space when creating the file, but it seems you should have it when *using* the file. I tried installing Tiger on a 15GB sparse image (created with Sebastians tool) for the last couple of days, with about 5GB actually free on the drive. That resulted in the strangest errors: One time, the Installer would claim it completed sucessfully, but the disk image was corrupt. Another time, it would claim that "some error" occured, and sometimes it would simply kernel panic in the middle of the install. Turns out the drive goes to 0 bytes free in the instant the Installer starts writing to the disk image. So it seems that Windows tries to allocate all of the 15GB somewhere on the disk, which, of course, failed. This same problem seems to exist with compressed files, but to a lesser extent. Moral: Make sure you have enough free space for your disk image to "explode"...