Thx, just tested it in VPC.
After changing the setting the new folder is created. None of the data was moved so I tried to move it manually which of course failed due to files being in use.
So then I booted my Win7 DVD to repair mode and used robocopy to move the files from the old user home to the new one. Then after rebooting Windows looked and behaved as if I had reinstalled the OS, with quite a few apps broken... Then I tried installing new software and guess what, Windows didn't even use the new user location I had set up but used 'Documents and Settings' instead.
So not only was the procedure complicated, it was also completely useless, and more or less messed up my (virtual) system.
Obviously I did something wrong along the way, but this little experiment has convinced me even more that something is very wrong with the Windows file location structure. I mean surely there needs to be a simple way to put the user data to a place that is not on the same drive as the OS?