Recently I've been struggling with setting up any Linux distribution under VirtualPC 2007. I needed to test a Firefox plug-in under Linux and didn't have a physical Linux machine.
I've tried several distribution and the problem was always with graphics - I didn't get the system working in graphical mode. As I found out the problem was in a colour depth - it should be 16bit.
I finally succeeded with PCLinuxOS 2007.

You can download the vhd file here:
http://rapidshare.com/files/204785798/linux_vhd.part01.rar.html
http://rapidshare.com/files/204794369/linux_vhd.part02.rar.html
http://rapidshare.com/files/204802696/linux_vhd.part03.rar.html
Or go to this page, where you can download other pre installed virtual machines.