Expanding a System Virtual Disk
The following procedure should work on ESX3 with a Windows 2003 virtual machine. Assumes LSI SCSI, basic disks and NTFS. This procedure is considered unsupported but should work just fine. Follow along at your own risk.
Also, the can be done a number of different ways. I think the main alternative would be to use diskpart.exe from a helper virtual machine. Diskpart will not allow you to expand your system volume.
Steps
Power off the virtual machine
SSH into the ESX host and become root (su -)
cd to the directory where the VMDK lives.
cd /vmfs/volumes/vmfs3-os01/myvm/Now you may expand the disk file using vmkfstools.
vmkfstools -X 20G myvm.vmdk.The new disk size should be indicated after the -X. In this case I am specifying 20GB. The X is capital. This process will take a minute or two.
Now boot your VM from the gparted live ISO. http://gparted.sourceforge.net/livecd.php. Note: I used version 0.3.4-7 because version 0.3.4-8 was missing the LSI SCSI driver.
Gparted will automatically open after booting. Select your partition, right-click, select Resize/Move. 
Drag the right side all the way to the right to expand. Hit the Resize/Move button
Now hit apply.
You may reboot back into Windows.
CHKDSK should run at first boot.
Windows will probably detect new hardware. I would reboot when prompted. 
Now you are done. Your C:\ drive should be the new size. 