Unfortunately this is a common scenario and overwriting the windows OS could lead to unplanned problems. You could use a partitioning tool and create a dual-boot box. I am obsessed with virtualization and will officially endorse VMWare physical machine converter.
The easiest solution to import your physical windows box into an identical virtual image is to share the windows drive via samba and then load vmware workstation 6+ on a separate machine on the same network (gigabit preferred). Fire up VMWare workstation on the second box and import the physical machine.
I actually managed to run parallels on a Mac OS host running a WinXP guest and then VMWare workstation 6 within the WinXP virtual machine. Then sucked in a physical windows box. Pretty amazing on a 1GB Apple Macbook running Mac OS X 10.4 with parallels running MS Windows XP SP2 and then running VMWare Workstation 6 and MS Windows XP SP2 virtually. Sick right?!