A brief post about something I just learned the hard way: Windows Server 2012 iSCSI Targets do not support dynamically expanding VHDs.
The new iSCSI target that’s integrated into Windows Server 2012 looked like a great tool for setting up a virtual NAS on VMware Workstation to create a SQL Server 2012 failover cluster test environment. FreeNAS 8.3.0, though I am impressed with it, doesn’t work because its iSCSI target (istgt) doesn’t support the required Persistent SCSI-3 reservations.
Microsoft’s iSCSI target supports all the required features for a Windows Failover Cluster. Now my problem is that it doesn’t support using a dynamically expanding VHD as it’s iSCSI Virtual Disk. Any VHD you create using the iSCSI Target in Windows Server 2012 will be a fixed disk. Differencing disks are supported also. I was hoping not to actually have to provision the full 30 GB I was going to pretend SQL Server would have in my test environment (thin provisioning versus thick provisioning). It’s something I would never do in a production environment (for performance reasons, mainly), but to test SQL Server 2012’s clustering setup, it would have been great. So I am going to have to keep looking for alternatives. I think maybe the Starwind iSCSI SAN Free will be my next attempt.
Sven Aelterman 
Hi there,
I don’t remember if this worked or not but have you tried using the Hyper-V/Computer Management VHD disk creation utilities?
Thanks, Rob
@Rob, thanks for commenting. It’s a good thought, and yes, I did try to create my own expanding VHD. In that case, the wizard does not continue to the next step.
Sven, I just dealt with a similar situation (making a Hyper-V 2012 failover cluster in my humble home lab… bumped into the same problems, and you just verified my suspicions, saving me some time … thanks!!! I was about to test iSCSI target on 2012, and I’m low on disk space, so fully allocated storage is an iffy proposition (I guess housekeeping work is ahead). Also was about to check out starwind. I did get the cluster going with FreeNAS, using thick disks (having bumped what looked like corrupt disks in my thin-disk-based attempt).
I have not checked normal use of the cluster, but at least its responding to System Center VMM. I’m expecting it to crash/hang at some point anyway… but its good to know that 2012’s iSCSI Target works with thick disks (that SCSI-3 thing has been a thorn with any iSCSI experiments of mine/of late). BTW – 2008 Fail-over HyperV clusters have been reported to work under the same conditions.
Thanks again.
@Jose, @Rob: Windows Server 2012 R2’s iSCSI target does work with dynamically expanding VHDXs.