I just tried to create a hard disk image of 4 Gb, using dd for windows.
dd can be downloaded from here:
http://www.chrysocome.net/dd
Please take care to download the 0.4 beta version, as it supports the command line you need below
Use it like this to create a hard disk image:
dd if=/dev/random of=name_of_your_hard_disk_image bs=1048576 count=size_in_megabytes
(for a hard disk image with the name "4Gb_HD" and 4Gb size, use:
dd if=/dev/random of=4Gb_HD bs=1048576 count=4000)
After creating the image, add it to the sheepshaver configuration file using the GUI, and start SheepShaver. When Mac OS has started, a dialogue box appears, asking you if you want to format the new disk. I choose Mac OS extended format, and seconds later I had a 4 Gb disk available.
But that's as far as it goes. Bigger disks are not supported, not even using drive setup of drive first aid.
Best wishes,
Cat_7