I have a HP Windows 7 Pro with 500mb system folder giving the same error.
Since I have a 256G SSD, I had already resized some volumes using Acronis Disk Director 12, so I reallocated the system folder to 750mb and it created two files .vmdk and .vmx
Now when I create a VM and point to the .vmdk it starts to boot and gives me "OS not found" ?