As you probably know there is Win XP mode in new Windows 7 (former virtual xp). You can get it from http://www.microsoft.com/windows/virtual-pc/download.aspx.
You need to download Windows Virtual PC beta and Windows XP Mode Beta.
The installation is easy, and you just need to agree to license agreement and type password for user in your new Virtual Windows XP.

Virtual Windows XP setup process:

  

Installation is pretty straightforward as you can see.

Integration features are enabled as a last part of installation.

The key of Win XP mode of Windows 7 are integration components that are installed in guest os (your virtual Win XP) and provide access from your Win 7 host to virtual Win XP:

  • clipboard
  • hard drives
  • printers
  • usb devices

Lets install our first application in virtual computer.

I choose Notepad++, great free text editor for programmers.

Power on your Virtual Win XP machine, and install Notepad++.

 

 

When you're done installing Notepad++ to Virtual Win XP, power off virtual machine so Windows Virtual PC Application Launcher can run your virtual applications.

 

We have new item under Virtual Windows XP Applications, our newly instaleld Notepad++.

 

Notepad++ in my Windows 7 and that same Notepad++ virtualized.