On a number of occasions we've had to expand the size of our VMWare disks. This is actually pretty trivial. All you need to do is use the vmware-vdiskmanager utility that ships with VMWare server. For example:

C:\Program Files (x86)\VMware\VMware Server>vmware-vdiskmanager -x 500GB "D:\Virtual Servers\SomeServer\Data.vmdk"

Also remember the vmdk file you want to choose is the disk descriptor file not the binary file. You can tell the difference by the size and the name suffix:

Once this is done you will need to expand the partition. Server 2008 & 2008 R2 will allow you to do this in the disk manager, even the system partition (I'm assuming that the same would apply to Vista and Windows7 but I have not personally tried it). If your running an earlier OS you can use a partition tool like the GParted Live CD.