The reason the XP Pro disk wasn't seen is that XP is not supported on the VPC. Vista is required. The Vista install later to 32bit RC worked when copied over to a second RC by simply creating a new shortcut to the vmc file itself. Virtual Box or another VM ware.
You still have to install the Windows Virtual PC before you can do anything else however. The setup for the XP Mode mainly preconfigures the vhd as it detects the hardwares on your system as it creates the new files on the drive in the designated folders there.
Even 7 was installed to the VPC as you can see here but has one unresolved problem connecting. The device manager there shows everything properly including the virtual ethernet adapter while the XP Mode and previous Vista and 32bit RC vhds never ran into this. Blocked by Windows Firewall until on the excepted programs list!