"Is it possible to update the build if it is running on a virtual drive (.vhd)?"
Short answer: YES
I do everything as VMs on Hyper-V.
I used the PC Settings route. DL & Install were quick, streamlined, smooth & successful. Took 30 mins to 1 hour for all to be said & done; including a pending update via WU w/ a restart.
Since:
Cons-
Have notice a lack of sound necessitating starting the Windows Audio Service, more than once.
Also, after being away from the machine for a bit, having to restart to re-establish connectivity.
Seems to take longer to boot.
(both ^ only in regard to the VM not, the Host machine.)
Pros-
Other than the above... find nothing lost or changed or amiss.
The Notifications thing is cool.
Choice for New Builds speed is good.
Everything A-OK, all Green Lights, no 'issues'.
Cheers,
Drew