It seemed to require more than 2 GB of memory as I could see it getting consumed while the SP1 update and finally fail due to memory shortage.
So I decided to increase my disk size.
Here are the steps required to follow to have this done easily:
#1. First download the "VHD Resizer" utility from vmToolkit to expand the total size of the VHD from this url: http://vmtoolkit.com/files/folders/converters/entry87.aspx
#2. Next, follow the instructions at Xtralogic to extend the File System Partition using Microsoft DiskPart. http://www.xtralogic.com/extend_fs_part.shtml
You may also take a look for DiskPart details at the url: http://support.microsoft.com/kb/325590
