This is because of an ACL mis-configuration and can be fixed in a jiffy.
Note: This is my quick and dirty method of fixing the issue. Not sure if it is the recommended one.
- Login as the administrator of the machine
- Right click on the folder in which you have placed the VHD and click on Properties
- Go to Security tab and click on Advanced
- Click on Enable Inheritance and check "Replace all child object permission entries with inheritable permission entries from this object"
- Click Apply
This should resolve the security permission issue.