initially creating the compressed volume file is inconvenient, because you have to work with either a real hard disk initially, or muss about with a virtual machine.
There are no real good tools for messing with a drivespace3 compressed volume file, other than the tools that came with win9x. (95 with plus!, or win98)
It does get around 2:1 compression ratio though, so win95 can fit very comfortably inside 384mb of ramdisk, and win98 can fit quite comfortable inside 512mb of ramdisk. Both will have sufficient freespace left to actually be usable for things. (a 512mb ramdisk can hold a full win98 deploy, IE 5.5 / IE6, and a handful of useful tools, along with the win98 installer files, with about 100mb of reported disk free after turning on superpak and squeezing the bejeebus out of it. Be sure to defragment the drive and the compressed image for maximal economy, before copying the DRVSPACE.000 file to the fileserver. The "you need 2mb of diskspace free on the host volume!!" thing is not actually true. Scandisk will mount the .000 file with 0bytes free on the host after the copy operation. You can be very miserly with the ram.)
The magic things that NEED to be done are:
MSDOS.SYS needs to be the full install version, not the version found on the EBD. (1)
XMSDSK needs to be loaded from the top of memory with the /T switch, and needs to be loaded from AUTOEXEC.BAT(2)
DRVSPACE.000 needs to be marked SYSTEM and HIDDEN with attrib(3)
Things that are very handy to do, include using DRVSPACE.SYS /MOVE to move the drvspace.bin handler from upper memory (where it gobbles down 64k of it! YEUCH!) into the XMS memory instead, and generally having a well considered upper memory layout/load order.
Windows runs absurdly fast from a ramdisk, even with compression turned on.
(1) If you compare these, you will find that they are quite different, and that the full install version contains data for what drive windows should be found on, among other things. These need to be configured correctly for your setup.
(2) Windows will have a hard time setting up the VMM if it cannot get enough actual RAM below 2gb address space. Ideally, you want a machine that has 2gb of physical RAM, where the top 1gb is used for this ramdisk, the bottom 1gb is used for win9x, and the address space above 2gb is free for use by the VMM subsystem. Windows gets "Uppity" about disk devices using drivers loaded from config.sys, and will throw up a very ugly "DRIVE %FOO% IS USING MS-DOS COMPATIBILITY MODE" warning on every boot if this is the case. This is avoided by loading XMSDSK from Autoexec.bat instead, per XMSDSK's literature. I have tested this myself, and yes-- this is indeed the case.
(3) Scandisk will *NOT* mount the DRVSPACE.000 file if it is NOT SYSTEM and HIDDEN. Copying the file from the share is hard if those are already set, so its better to just copy it, then set the flags programmatically with attrib first.