To create an ISO Image using Disk Utility...
1. Insert the CD or DVD disc in your computer's optical drive.
2. Open Disk Utility (/Applications/Utilities/Disk Utility).
3. Select the CD or DVD disc in the list of disks and volumes.
4. Choose File > New > "Disk Image from (Name of Disc*)."
* See Tip in previous reply. (For OS X you need to select the Optical Device itself not "Mac OS X Server Install Disc")
5. Type a name for the disk image.
6. Choose "DVD/CD master" from the Image Format pop-up menu.
7. Choose "none" from the Encryption pop-up menu.
8. Click Save.
After you have made the ISO Image then eject the source disc from the optical drive.
Next assign the ISO Image as the CD/DVD in the Virtual Machine's Settings sheet.