Paul

Thanks to all for your responses.

I tried a few more things and as I had guessed it seems the problem
was due to limited file access for the laptop user.

NB I was using 2 VMC files to reflect the different hardware on each
host, RAM, network card etc.

The laptop and the desktop are not on a domain (but are both running
Vista) and the VHD was created by the first user on the desktop. He
could then start the VMC, shut it down and merge his VUD file into the
VHD no problem.

Now when the laptop user came and started up his VMC - it also all
worked fine except when he shut down and tried to merge he did not
have "modify" access to the VHD file and so it was effective read-only
for him. Therefore
1) the changes could not be merged into the VHD and
2) as the VUD file was not known by the desktop user's VMC it was not
used by it and all work done on the laptop was not visible
3) any subsequent work done on the desktop meant the laptop VUD was
not compatible with the newly merged VHD.

So to cut a long story short, adding Modify access for the laptop user
to the folder meant both users could merge into the same VHD file and
the external drive is now fully transportable between systems.

Hope this helps someone.

cheers,
Paul.