There are many ways to tweak VPC to get better performance. Putting the vhd file on its own physical (fast) hard drive is key, and
Brian Randell has other tips.
But the single biggest thing you can do is have so much RAM in the host computer that there's no paging. I just upgraded my desktop so it has 2.5 gigs of RAM. My VPC machine has 768 megs allocated and it is fast. And at the same time on the host I'm able to run Word, Outlook, RSSBandit, Windows Media Player, Trillian, Avant Browser and all the other random stuff in my system tray.
The key of course, is to avoid paging, and the only real way to do that is to have about 20% more RAM than you'll ever actually use. 2.5 gigs seems to be a sweet spot for me, since even with everything running at once I still show almost 1 gig of free memory.
Prior to this I was at 1.5 gig total RAM, and with a VPC loaded the whole system was super-slow. The VPC was almost unusable, and other apps on the host loaded very slowly and ran with sub-par performance.
Now, last night I fired up a game and was happily playing away - then I realized that I'd never shut down the VPC. Here I was playing a memory-hungry modern game and a VPC and I didn't even notice the difference.
More memory is happiness!