You can use the vmware-vdiskmanager tool to expand a VMware Server virtual disk and increase its capacity, like so:
vmware-vdiskmanager -x [size] [vmdk_filename]
Where [size] is the size you want the disk to be, in sectors, Kb, Mb or Gb, and [vmdk_filename] is the full filename of your VM's .vmdk file.
Example, where I increase the size of a Gentoo VM to 2G.
steph@localhost ~ $ vmware-vdiskmanager -x 2Gb /var/lib/vmware/VMs/Gentoo\ 2008\ beta1/Gentoo\ 2008\ beta1.vmdk Using log file /tmp/vmware-bn/vdiskmanager.log Grow: 100% done. The old geometry C/H/S of the disk is: 512/128/32 Preserving old geometry. Disk expansion completed successfully. WARNING: If the virtual disk is partitioned, you must use a third-party utility in the virtual machine to expand the size of the partitions. For more information, see: http://www.vmware.com/support/kb/enduser/std_adp.php?p_faqid=1647