First, let's correct that wrong information Infinite gave you above: Of course you can run Windows 7 guests on Microsoft Virtual PC. Absolutely no problems there, so you do not need any third party virtualization software for that.
You can install any edition of XP, Vista and Seven to a Virtual PC vm. Just remember that Virtual Application Feature (to run an application on guest directly from host Start Menu) is only supported on XP SP3, Vista Ultimate & Enterprise and Seven Ultimate & Enterprise guests. In other words, you can install for instance Vista Home Basic or Seven Starter to a Virtual PC vm but then the Virtual Application Feature is not available.
Then your original question. Yes, you will need a licence for a Windows 7 guest. A virtual machine is like any other computer; it needs it's own validation / licence, AV, firewall and so on. Windows XP Mode is a completely working, licenced XP SP3 which Microsoft is giving free for those running Windows 7 Professional or higher.
If you are running Windows Seven Home Basic or Premium, you can still download Virtual PC and install any edition of XP, Vista and Seven guest on it. Then you will need a valid licence also for XP guest. Here
you will find instructions on how to install Microsoft Virtual PC on Seven Home editions.
Please remember Microsoft Virtual PC can only run 32-bit guests.