One of the reasons I used VMWare Fusion and now use Parallels Desktop is Microsoft Office.
My current setup is to have all documents in my OS X environment but accessible from within Windows i.e. using the Parallels shared folder mechanism. This means that there are no documents in the virtual machine.
The other thing I had to do was to move the Outlook files from the virtual machine into the OS X environment. Microsoft has a pretty good article about moving the Outlook PST file to another location.
Once I had done this, it meant that I no longer had “variable” data in the virtual machine. This, coupled with Parallels’ Compressor tool, meant that I could get a really small virtual machine image. The resulting image is about 13GB in size. To really optimize the size, I probably also need to move the system’s temporary files elsewhere.
The other good thing is that I can then use OS X back-up tools to back up both my work and Outlook files.
I am slowly but surely getting to an ideal personal/work computing environment aka personal computing nirvana.
Until I upgrade to a new Mac with Leopard. Then maybe it’ll start again…