Now that we have tested that everything is working fine, lets use a real USB harddisk instead of a virtual disk, this way we bypass the Windows limitation to install on an external USB drive. Its easy...
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Windows 7 setup boots but is unable to find a harddrive. Now click on "Load Driver" to load the driver that we used as the "floppy image":
Now the LSI SCSI harddisk is accesible and you can start installing Windows 7:
On an next blog entry we will replace the target virtual drive with the USB real one and we will see whats needed to be modified in order to use the real USB harddisk to boot Windows 7 from it :-)