1. A method for dynamically generating a configuration for a virtual machine, the method comprising: (a) providing a computer running a host operating system, with a plurality of storage devices attached to said computer; (b) providing a first internal storage device out of said plurality of storage devices, said first internal storage device containing a file system; (c) providing a second external storage device out of said plurality of storage devices, said second external storage device storing a virtual hard disk containing an installed guest operating system; (d) providing a virtual machine monitor installed on said computer, said virtual machine monitor supporting copy-on-write behavior for said virtual hard disk; (e) providing a configuration template comprising configuration settings that are stored in a format supported by said virtual machine monitor; and (f) providing a plurality of instructions to be executed on said computer after said second external storage device has been connected to said computer, wherein the instructions to perform the method comprising: (1) autodetecting a directory in said file system on said first internal storage device, (2) generating configuration settings for a virtual machine controlled by said virtual machine monitor specifying predetermined configuration parameters that are read from said configuration template, (3) generating additional configuration settings for said virtual machine specifying that said virtual hard disk is attached to said virtual machine with said copy-on-write behavior so that a virtual hard disk overlay file corresponding to a virtual hard disk base file of said virtual hard disk is stored in said directory on said first internal storage device, wherein said virtual machine with said copy-on-write behavior redirects write operations of said guest operating system to said virtual hard disk overlay file in said directory on said first internal storage device.