Ubuntu 7.4
I have installed Ubuntu 7.10 using Fusion. I copied the ISO over to the MAC and pointed to it in the Vmware install process. This was very straight forward. You are prompted to install Vmware tools when you first log into your new virtual machine. Click on the readme file in Linux and follow the steps to start the indicated script (the directions are very good).
I have moved copies of the resulting virtual machine to other MAC drives with success. Also I have run an online internet upgrade to Ubuntu 8.04.
Also, I have installed Ubuntu 8.04 and am using it for a headless Linux SAMBA file server. So I would suggest downloading the 8.04 ISO and using it instead of the 7.10.