I'm confused as VHD is making a virtual machine in 7??
It has nothing to do with saving your data in case of OS failure.
If you started off with 1 HDD, had DVD drives and card reader this is why you now have a J drive (next available letter).
If you need to reinstall the OS you can do it to C: while leaving J untouched therefore move My documents and store all photos documents etc. on J (but this will still not save you against a HDD failure you should always back up to another drive preferably and external one).
Go into disk management find J right click check properties format if necessary and it should then be available for use.