Apparently there is truly no solution to the above. The only suggestion Microsoft could come up with was to make some more space in the drive...
To solve the initial problem I did the following:
- Create an image with True Image 2013;
- Converted it with the free StarWind Converter (http://www.starwindsoftware.com/download-starwind-converter) to wmdk;
- Create a new virtual machine (custom settings) and use the above vmdk file as the hard disk.