Time Machine is often unreliable for full restores. On Snow Leopard it was notorious for silent corruption, which only is found when you try to do a restore.
Here's what you have to do to resize a Mac VM.
Create a new VM.
Drag the ML installer DMG to the window where it's asking for installation media
When prompted, choose customize settings.
Then (and only then), start up the VM and install OSX.
During the OSX install, when prompted to migrate, plug in your TM backup and select 'migrate from Time Machine'
Assuming that the backup is intact, it should bring everything over for you.