Well its really quite simple.
Set up the Virtual Machine, it uses a wizard for that when you launch VMWare the first time.
Select RedHat or some other Linux, it doesnt matter which one really.
When it asks you about how much memory to use, pick at least 64 megs, but I would suggest 128 to be safe for anyone else who wants to use the phathack CD and may read this.
When it asks you to pick a hard drive size it will default to 4 gigs, you can change it to 256 megs or less.. this file is not really going to be used but I've had trouble booting vmware without it on older versions.
Just select the defaults for everything else.
Now, once the wizard is completed.. you'll need to put the CD into your CD rom drive.. and put the DMS into the cradle.. But you need to unmount the DMS drives from windows without removing the DMS from the cradle... You don't use PMM to do this, use the Green Arrow icon in the system tray to eject it.
Then what you do is power up the Virtual Machine.. while its booting up select from the tool bar VM dropdown.. I don't recall the exact name of the dropdown but you'll see what I mean. (when I say drop down, I mean something like the "File" or "Edit" menu options on most any windows app..)
Select from the list of that drop down "Removeable Devices" then from the sub list "USB Devices" and you should see a device in there like "Standard Microsystems Device" I think, thats what my USB 2.0 cradle looks like. Select that one and it should allow that device to be seen in the virtual machine.
Once it boots up you should be good to go.