I had a similar problem and thought I would post a workaround / solution:
Situation:
I have Windows installed to partition 1, and Linux to partition 2. I want to be able to live boot to either, or run either in a VM from the other (although have only tried running Linux under Windows host).
With VMWare workstation 7, I could "use physical disk" (the whole thing, /dev/sda under linux). But with workstation 9, I got the "physical disk already in use" error. But I wanted to upgrade because WS7 cannot boot new kernels (3.x) on Ivy Bridge due to some new security mode.
Solution:
Here's what works: I use a physical disk for /dev/sda2 (the linux partition) only. This prevents "physical disk already in use", but no longer boots. And grub doesn't want to be installed on a partition. So I made a new virtual disk of minimum size and assigned it also to the VM, and installed grub on it (using a rescue disk). Then I changed the boot order in the VMWare bios of the VM to boot from the second (virtual) disk.
