So I install two Windows 7 VMs through VMware fusion 4. The desktop resizes very nicely in the first: Windows senses the resizing and uses smaller icons.
In the second VM Windows simply magnifies its desktop to a rather ugly one: the desktop uses more real estate, but it's just a magnified image of a low-resolution desktop.
I'm not aware that I have changed any setting related to the desktop. How can one intentionally get the former behavior?