This article is follow up on my previous article on creating Win 8 To Go USB stick. This scenario is not supported in any way by Microsoft and I did it just to show the extent of technology and what can be achieved with it.
Here is short step-by-step tutorial on how to do this. These steps come after creating USB stick as described in previous article. If you will be using Windows Server 2012 ISO then in this command
imagex.exe /apply f:\install.wim 1 #:\ (replace # with USB stick drive letter eg. g:)
replace number 1 with 2 or 4 or you will end up with Core installation of the OS (although you can add GUI via command line)
Use some virtualization application that supports USB in VM (I use VMware Workstation 8)
Download and extract Plop ISO image (you will need this since VMware does not support booting from USB)
Create new VM and attach ISO image to CD (you can remove HDD since you will not need it)
Boot from USB and voila
First time boot will take longer until all hardware is detected and settings are finalized. Here is short video of Windows Server 2012 Datacenter booting in VM from USB stick.