How stupid can I be, telling 7HB does not exist! I totally, totally forgot the Home Basic. Please forgive me Feeling like a total idiot now!
OK. To start, 3GB vhd for XP is awfully small! But, that's what you now have. To be able to see the host's drives, you need to change the used network adapter from the XP virtual machines settings. I have not a Virtual PC 2007, but this screenshot from my newer Virtual PC shows what I mean:
After that you should see the host's drives.