XP Mode
From HelpDeskWiki
Windows 7's Windows XP Mode is something which is talked about, but there doesn't seem to be much detail on how to actually make it work and what to expect.
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What is Windows XP Mode
Windows XP Mode is basically Virtual PC running Windows XP in a pre-built virtual machine that you download free from Microsoft, complete with license. Virtual PC only runs on Windows 7 Professional, Enterprise, or Ultimate, and the computer must have the virtual emulation hardware features that Virtual PC needs. Shortcuts on the XP Public Start menu are sutomatically copied to the Windows 7 Start menu, and adjustments are automatically made behind the scenes so that the Windows XP Mode applications can work with documents on the Windows 7 desktop or Documents folder.
What to expect
Once it is set up and configured, applications installed in Windows XP Mode are pretty much seamless with Windows 7; they look like just another application, and they appear on the Windows 7 Start menu, although sometimes you have to do some tinkering to get them to show up. The first time after you log on to Windows 7, there is a delay as the virtual machine is started up, but after that, applications pop up instantly, until the next time you log on. If you have the Windows 7 and Windows XP appearance set to look similar or the same, you cannot easily, if at all, tell whether an application is running under Windows XP or under Windows 7.
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How to set it up
Go to the [Virtual PC download page (http://www.microsoft.com/windows/virtual-pc/download.aspx)] to download both Windows XP Mode and Virtual PC. You should install Windows XP Mode first, then Virtual PC. Once you have both installed, and have restarted te computer, you should find Windows XP Mode listed under Virtual PX in your Start menu, and you can then start Windows XP and configure it and install your application(s).
Caveats
Applications running in Windows XP Mode automatically have access to the same drives that Windows 7 does, and use the Windows 7 network (internet) connection, so it should not be considered a protection against malicious software. Windows XP also needs all of the updates and protection (including antiviru software) that it would need if it were running on real hardware, although since all of the data appears to go through Windows 7, it's probably not quite as insecure as it would be otherwise. Nevertheless, there is always the possibility that a security flaw in Windows XP can make the Windows 7 system easier to attack.
Gamers should be aware that DirectX is not supported under Virtual PC, so older games that don't run under Windows 7 will need a dual-boot system.
Conclusion
Although Windows XP Mode could be easier to install (such as included with Virtual PC or preinstalled in Windows 7), and installing applications in Windows XP Mode could also be made transparent (for instance, right-clicking on the installer and selecting "Install in Windows XP Mode" would be nice), it seems pretty likely, as others have commented, that this is the future of backwards compatibility, to make it easier for old technologies to be dropped from future versions of Windows, or even to transition to something which bears little resemblance to modern Windows.
