I finally figured out a way to successfully install SQL Server 2008 R2 on Windows Server 2008 hosted on Virtual PC 2007.  I had been getting the dreaded error 2337 during install which so many other people appear to be sufferring from as well.  The solution was rather simple, but it took many failed tries to figure it out.

Copy the ISO image of SQL Server 2008 R2 to your host operating system hard drive.  On your host OS, use something like Daemon Tools Lite to mount the ISO image.  Install.

See?  Simple.

I discovered this neat little open source application called Console that is effectively a shell for cmd.exe in Windows.  The reason I found this application was because SQL*PLUS that comes with the Oracle 11g client tools is command line/prompt only.  One of the rather annoying behaviors that cmd.exe has is the inability to easily copy and paste.  Console solves that problem and a whole lot more that I didn't realize I had.

Console's features are described as having "multiple tabs, text editor-like text selection, different background types, alpha and color-key transparency, configurable font, different window styles."  Now I have not utilized all these features yet, but the text editor-like text selection is very handy.  The multiple tabs feature is also quite nice.

Shortly after getting Console I created a shortcut to load Console and run SQL*PLUS.  First I opened Console's settings (Edit > Settings) and created a tab called SQLPLUS where I set the startup directory for my most common SQL script.  For the shortcut, I used the following:
"C:\Program Files (x86)\Console2\Console.exe" -t SQLPLUS -r "/k sqlplus"
The command line arguments I used were -t which tells Console which tab to use and -r to run a command.  I wanted it to use the SQLPLUS tab that I had previously configured under Settings.  The -r argument was a little tricky because when you use cmd.exe as your shell for Console, running programs needs to be preceeded with a /k which is why you see it before sqlplus.

I also created a shortcut that loads Console, runs SQL*PLUS, logs into an instance, and runs a SQL script automatically.  To do this I added my login credentials and the path to the SQL script after the sqlplus command.  It looks something like this "/k sqlplus user/pass@instance @runme.sql".