What version are you using? Did it work on epsxe? I'm using the 2.70 ver and i didn't have any problems except that i need some new windows installer. Then just install it then it works.
Make sure that your Vitual/Phantom drive has a lower drive letter than your real cd rom drives. VGS will search in alphabetical order for a cd. You can you do this in the contol panel|device manager, just double-click the phantom drive and set the drive letter. You may have to change your real CD drive letters further up the alphabet to make room for your virtual one. Hope this makes sense.
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