Hi all,
Since I started using vmware 7.1.2 the problems with using a iso image as the boot cd went away.
I am following a tutorial "Free'n'Easy Windows File Server - Network Drive Storage with Devil-Linux & Samba" - http://www.edendevelopments.co.uk/dlsetup 
Tutorial is easy to follow, and displayed many powerful features of linux to me.
Thanks to everyone who had advice with my vmware problems.