Windows 2003 server boots just fine from dynamic disks, but I think you should show us a screenshot of your Disk Managament MMC so we can be sure you're not accidentally spanning the volume.

The most obvious difference between basic and dynamic disks lies in operating system support. While all versions of Windows--even DOS--support basic disks, we can't say the same for dynamic disks.

I have modified MBR from 0x42 to 0x07 in windows 7 to convert dynamic to Basic disk i.e. 0000001C0 01 00 42 to 0000001C0 01 00 07 and now my system is not booting up it is just showing only c ...

Also, the repair disc offers a variety of basic Windows repair and recovery capabilities, under the various headings shown in the following boot-time menu when the Recovery options are elected.