This was tested on Windows 2003 R2
Here's a VM that need its C drive expanded:
Edit VM Setting and set the new VMDK size (this can be done online).
Rescan disks, and you'll see extra free space at the end of the partition.
Now boot into Parted Magic.
Select the first partition, click Resize and set the new size.
You will have to select Apply to actually do the resize.
Reboot into Windows.
CHKDSK will run automatically and finally you will have your expanded C drive.