It's a matter of personal choice really.
I've tried both and I do prefer VMware player if only for the aesthetics, but prefer XP Mode on cost grounds.
You don't need an XP disc, just download XP Mode (it's a freebie from Microsoft) from the Virtual PC site and install it.
You will need an XP disc if you use VMware player.
One important thing I forgot to mention and that is whichever virtual machine you use you'll need to go into the BIOS and enable hardware virtualization under the Power settings otherwise your virtual PC won't work.