My guess and these are big GUESSES at this point is Windows is limited to the congruity of the start of block of each virtual disk that is flagged to boot. Wait a tick! I just looked at my box, vista defaults to a basic disk so I am not sure why partiion magic didn't work. Hmmm my the page file and volume shadow could be stopping it? Mine are right in the middle of the disk. Yours might be near the partition point. Also how is the free space showing up? Unallocated? Something is locking it. Post a shot of your screen.

I have NEVER tried this but I wonder if you can boot into safe mode or command line mode and use diskpart, the command line utility in vista? Once you get the volume and disk id you can select it and enter something like:

extend size=2048 disk=1

Also since like 2000 you could merge partitions by clicking them both and merging them. If you have some extra space try that? Vista may still be seeing it as a partition somehow. Hope all this GUESSIGN helps. There isn't much on vista yet our on the boards.