So, will this increasing performance actually? I think so because what OS and HDD see are one unit file which is VHD. So there is only one modification file.
Unlikely.
The HDD doesn't care about files at all. It only cares about head movements – whether the data is linear or whether it's scattered around. In that regard, updating small chunks of a large file that are all over the place is exactly the same as updating small individual files all over the place.
So while the VHD file itself looks like a single linear allocation within D:\ (but so does an actual partition!), its contents that are used by the OS aren't nicely packed – the small files inside the VHD are still scattered around within the VHD's space, and when you're working with them, the HDD still has to seek from one file to another; from one extent to another; etc. It does not change anything that those seeks remain "inside the VHD" – physically they're still done across the entire 128 GB area and it still takes the same amount of time.
And of course, the OS still sees multiple files – in the mounted VHD. When you're working with the contents of the VHD-mounted E:\, you are not bypassing anything; if they were many small files before, they're still many small files after, and because the VHD has an NTFS filesystem like a real HDD, the OS still has to update their metadata in the same way, etc.
(In fact, the OS may now have to update the metadata twice, once for the VHD's filesystem and again for the physical partition's.)
As we know HDD is slower in term of read and write access time. Actually, it's not that slower if a transfered file is big size compared to multiple files with small size in KB unit being transfered.
It's all about seek time, i.e. the time it takes to mechanically move the read/write heads from A to B (which is essentially wasted time as the HDD can't transfer data while seeking). I've seen SSDs that had only half the throughput than the HDD they replaced, but they still felt faster because they had 0 seek time.
If there weren't any seeking necessary – e.g. if you picked up a whole .vhd and started copying it elsewhere – then it would be indeed faster than copying the individual files (and a good HDD could even outrun a cheap QLC SSD). So that's maybe the only possible advantage of your "full-size VHD" plan. But you can already do that with a partition; there are tools to copy partitions as single units (even tools to copy a partition into a .vhd).
