CentOS 5 Server :: Create Qcow2 Image In 5.5 Virtual Machine Manager?

I'm trying to set up a virtual machine environment in Centos5.5. My hardware fully supports virtualization, and I'm running qemu as the hypervisor with Virtual Machine Manager as the GUI to manage and create VMs. Host hardware is a Dell PowerEdge T710, with a quad core Xenon processor and four 1TB disks in a raid 6 array.

Within the Virtual Machine Manager when trying to create a new VM, there is the option to not "allocate entire virtual disk now". What format is created when you "allocate entire virtual disk now" and when you don't?

I want to create a qcow2 image format, but it doesn't look like it is supported. Does anybody know how to create a VM with a qcow2 image format?

When you create a blank disk with "qemu-img create -f qcow2 disk.qcow2 3700G", it indeed does create a qcow2 image. However, Virtual Machine Manager is unable to read these images, claiming that it is 15 megs or so in size (which is what it actually occupies in host disk space until you try and put a VM into it).