Windows 7 Feature Focus: Virtual Windows XP (AKA XP Mode)
Although Windows has included the Program Compatibility Wizard and Compatibility tab to help older programs to run properly under the current version of Windows since Windows XP, these features are not always able to help older applications to run. While Windows 7 continues to offer these features, some editions can also use a better way to run older Windows applications: XP Mode.
XP Mode at a Glance
XP Mode (also known as Virtual Windows XP) enables some editions of Windows 7 to run Windows XP in a virtualized window, and to run individual Windows XP-compatible apps in a virtualized environment directly from the Windows 7 Start menu.
XP Mode is supported by the following Windows 7 editions: Professional, Ultimate, and Enterprise. The System properties sheet tells you what version you have:
By providing an actual Windows XP environment, as opposed to an emulation of Windows XP as provided by the Program Compatibility Wizard and Compatibility tab in a program's properties sheet, XP Mode enables business programs that require 100% Windows XP compatibility to run within Windows 7. Unlike Microsoft's previous virtualization environment, Virtual PC 2007, XP Mode enables Windows XP-compatible programs to be launched directly from the Windows 7 Start menu. You can also pin XP Mode programs to the Taskbar or Start menu in Windows 7.
XP Mode also enables you to use peripherals (such as older scanners and multifunction devices) that are not supported by Windows 7; you can run them in XP Mode and save the output to locations accessible to both XP Mode and Windows 7
To use older versions of Windows utilities such as Internet Explorer 6 supplied with Windows XP, launch a windowed or full-screen XP Mode virtual machine and run programs within it.

The FAQs About XP Mode
Since XP Mode was announced as an optional feature for Windows 7 Professional, a lot of erroneous information has been published about XP Mode. Here are the FAQs:
Q. What do I need to run XP Mode?
A. There are three requirements:
- You must be running Windows 7 Ultimate, Professional, or Enterprise editions.
- You must have a processor capable of supporting hardware virtualization (Intel refers to this feature as Intel Virtualization Technology; AMD refers to this feature as AMD-V).

3. Hardware virtualization must be enabled in the system BIOS.
Q. Do I need a copy of Windows XP to use XP Mode?
A. No. Microsoft provides Windows XP SP3 as a VHD file for use with XP Mode.