Hello matneh Welcome to the SE7enforums!
You just named the problem namely XP! XP can not be installed on the Virtual PC beta or now Release Candiate. To install and run XP on vhd with 7 as the host you will need the SUN Virtual Box being more compatible with the versions prior to Vista.
The new Virtual PC for 7 offers something else instead namely the new XP mode also seen in RC at this time. With that you won't need any XP installation disk and still have XP Pro running on a virtual machine. The vhd for the XP mode will be created during the installation process as you follow the guide for this.
Windows XP Mode - Install and Setup
For custom installations of Windows separate from the XP mode that requires Vista or the 32bit 7 to go onto a new vhd created separate through the VPC itself.
Virtual Hard Disk - Create and Attach VHD
Instead of attaching the vhd in the Disk Management tool however once created you place that in the "C:\users\user name(admin))\AppData\local>microsoft>Windows Virtual PC>Windows Vrtual Machines\folder" where you would find the XP mode's vhd as well. With the Vista or 7 dvd left in the dvd drive used to install Windows when going to simply double click on the shortcut you can create to that vhd the Windows installer or even a live Linux cd will suddenly come to life without restarting the system to boot off of the disk. The setup files will go right to the new vhd itself.