Create a new virtual machine

New
Select an operating system installation mode: Typical > Next
OS Type: Linux
OS Version: Other Linux kernel 2.6 > Next
Specify a name for the virtual machine: BackTrack 3 > Next
Optimize for better performance of: Virtual machine > Next
More Options > ISO image > Choose > bt3-final.iso > Open > Finish

Machine will start to boot.
BT3 Graphics mode (VESA KDE) > enter

Create partitions

bt ~ # fdisk /dev/hda

Command (m for help): n [enter]
Command action
  e  extended
  p  primary partition (1-4)
p [enter]
Partition number (1-4): 1 [enter]
First cylinder (1-4079, default 1): [enter]
Using default value 1
Last cylinder or +size or +sizeM or +sizeK (1-4079, default 4079): +50M [enter] 

Command (m for help): n [enter]
Command action
  e  extended
  p  primary partition (1-4)
p [enter]
Partition number (1-4): 2 [enter]
First cylinder (8-4079, default 8): [enter]
Using default value 8
Last cylinder or +size or +sizeM or +sizeK (8-4079, default 4079): +256M [enter] 

Command (m for help): n [enter]
Command action
  e  extended
  p  primary partition (1-4)
p [enter]
Partition number (1-4): 3 [enter]
First cylinder (40-4079, default 40): [enter]
Using default value 40
Last cylinder or +size or +sizeM or +sizeK (40-4079, default 4079): [enter]
Using default value 4079 

Command (m for help): a [enter]
Partition number (1-4): 1 [enter]
Command (m for help): t [enter]
Partition number (1-4): 2 [enter]
Hex code (type L to list codes): 82 [enter]
Changed system type of partition 2 to 82 (Linux swap)

Command (m for help): p [enter]
Disk /dev/hda: 33.5 GB, 33554497536 bytes
255 heads, 63 sectors/track, 4079 cylinders
Units = cylinders of 16065 * 512 = 8225280 bytes

   Device  Boot     Start        End      Blocks   Id    System
/dev/hda1    *          1          7       56196   83    Linux
/dev/hda2               8         39      257040   82    Linux swap
/dev/hda3              40       4079    32451300   83    Linux

Command (m for help): w [enter] 
The partition table has been altered!

Calling ioctl() to re-read partition table.
Syncing disks.

Format partitions

bt ~ # mkfs.ext3 /dev/hda1
bt ~ # mkfs.ext3 /dev/hda3
bt ~ # mkswap /dev/hda2
bt ~ # swapon /dev/hda2

Copy files

bt ~ # mkdir /mnt/backtrack
bt ~ # mount /dev/hda3 /mnt/backtrack/
bt ~ # mkdir /mnt/backtrack/boot/
bt ~ # mount /dev/hda1 /mnt/backtrack/boot/
bt ~ # cp --preserve -R /{bin,dev,home,pentest,root,usr,etc,lib,opt,sbin,var} /mnt/backtrack/

bt ~ # mkdir /mnt/backtrack/{mnt,proc,sys,tmp}
bt ~ # mount --bind /dev/ /mnt/backtrack/dev/
bt ~ # mount -t proc proc /mnt/backtrack/proc/
bt ~ # cp /boot/vmlinuz /mnt/backtrack/boot/

lilo

bt ~ # chroot /mnt/backtrack/ /bin/bash
bt ~ # nano /etc/lilo.conf

lba32
boot = /dev/hda
prompt
timeout = 60
change-rules
reset
vga = 791
image = /boot/vmlinuz
root = /dev/hda3
label = BackTrack
read-only

Press ctrl+x to exit.
Press y to save.
Press  to overwrite the file.

bt ~ # lilo -v
bt / ~ exit

Finish

K menu > Log Out > Turn Off Computer
When you see "Please reboot your computer with Ctrl+Alt+Delete" > Stop > Yes

Edit > Virtual Machine
CD/DVD-ROM > Emulation: Use CD/DVD-ROM
OK
Play

That’s it.  Enjoy.