I don't really know what you have there, but that is not an image of a typical XP system disk.
Pictures of the disk-manager and source drive info don't show my old xp-system, but data disk of my Win10pro64bit.
Separation into different partitions and logical drives is based on the fact, that I first put my xp-system-disk (only system-drive) into *.vhd-container using disk2vhd-tool. Then I cloned my 500GB-Data-HD onto a 1TB-HD using acronis true image. So I always had the possibility to easily return to my old system by simply reusing the untouched old HDs, if something crashes while installing Win7 and upgrade to Win10 onto the new ssd + data-hd. After cloning the data-hd, I created an additional primary Partition inside the unused diskspace to place a temporary systembackup of my laptop-computer. To place the copy of my vhd-container I wanted to create another additional primary partition, but Windows told me about the incapability to handle more than three primary partitions, so the additional drive is created as a logical drive. The existence of the OEM-Partition is a riddle. I don't know why it is there, because the PC isn't a OEM-Computer and Data-Disk was new. Perhaps some change in partitions-size lead to this additional partition. I'll try to delete it and to transfer the free space to an existing partition.
So I had the possibility to format each of the volumes seperately. But you're right. Folders are much more easy to handle...
So far as background-information about the partitions you see at the screenshots - hoping it's not too far off topic.
Returning to your original question, I believe your best course of action is to run sdelete (inside the guest OS of course) on each partition that you want to compact.
I'll try this. Inside the guest-XP there is only one partition. And I'll try to copy the vhd-container to another PC with less partitions and no logical drives - if hanging is caused by host-filesystem, perhaps I can convert and compact it there.
I'll give you feedback.
André
edit:
Was this an image of a branded OEM system? HP for example? If so then the hidden partitions would be for recovery to factory settings.
I just looked at the partition table using partition wizard and must admit that you were right
There was a hidden FAT16-partition at the beginning of the partition table containing DELL-systemtest functions. When I saw this, I remembered that it must have been my XP-systemdisk that i cloned first onto the new drive, followed by the data disk - and that's the reason for the existence of the hidden partition. So I transferred the 2-disk-xp to a bootable 1-disk-xp using different partitions on one drive instead of two physically different drives.