Maybe I start to understand.

You would like to run an operating system from a hard disk image.
The operating system is NT based, XP Embedded.
XP embedded should have, in common with Server 2003 SP1 and R2 (not SP0, not SP2) a "working" RAMDISK booting method.
The limit is 512 Mb in size for the image (besides of course the overall amount of RAM in the system).
Most probably the "same" image that works in the Vm won't work this way (because of different hardware drivers), but otherwise, within the given limits, there are no problems.
If you need a bigger image you will need to use a Commercial app:
http://www.disklessangel.com/and of course need a lot of RAM.
An "intermediate" solution is booting as RAMDISK a smallish image, with base system files and later mount directly one or more other images (for example "Programs", "Data", etc.) using drivers like IMDISK or VDK.
Currently there are NO alternative methods, basically it does not exist (or existing drivers have not been experienced succesfully) to boot "directly" an image, though in theory it is possible.
Check this:
http://www.boot-land.net/forums/index.php?showtopic=1507for a number of related links.
Read this seemingly unrelated thread:
http://boot-land.net/forums/?showtopic=5798AND links within, with particular regard to
aec's threads
Search for threads (here and on 911cd board) where user
euhenio posted about his "generic" method for XP.
XPE has original, officially documented ways to do the same, using SDI format of images:
http://msdn.microsoft.com/en-us/library/ms838543.aspxbut the point is that a "normal" RAW hard disk or superfloppy (read partition) image can be used as well, without using the "proprietary" SDI format.
mbldr won't help you with this, you will need (if you wish to use an internal to the image NTLDR) grub4dos and it's image mapping features to start the "real mode" part of the booting.
Check also this other seemingly unrelated thread:
http://www.boot-land.net/forums/index.php?showtopic=5316jaclaz