Issue

On dynamically allocated vdisks, freed space on a guest is never released back to the host once freed.

Cause

This is by design.

Resolution

The procedure for shrinking (compacting in VirtualBox parlance) is straightforward and consists of a series of steps.

1. Delete files on the guest to achieve the desired amount of free space
2. Zero free space out with an appropriate utility
3. Shut down guest
4. Compact disk

Zeroing guest free space is simple: Microsoft provides an excellent utility through its Sysinternals group called SDelete. Download the program, extract it from the archive, and execute it on the disk to be zeroed. _Note: this procedure only zeroes free space._

sdelete -c

One the zeroing procedure is completed, you may power off the guest and compact the virtual disk from the command line.

VBoxManage modifyvdi /path/to/machine.vdi compact

Note: This was tested against VirtualBox 3.0.4 r50677

References

SDelete