Just some thoughts on using "XP mode" or Vmware for Virtual machines.
1) XP Compatability mode
XP mode is better integrated and can run typical business legacy apps from the desktop quite nicely -- more suited to "1-off" virtual machines for a normal "Office" type user.
Windows XP SP3 guest OS is already installed and activated and from windows explorer can view local HOST disks from the VM.
Currently FREE complete with a copy of Windows XP SP3 (and it's got keys already built in -- the serial number is in the text file).
BUT - screen adapter only works in 16 bit mode so don't run Photoshop or any photo editing software. You also need to do a bit of fiddling to enable "classical networking" althouth IE Internet browsing is enabled "straight out of the box".
You also need VT enabled to run this which means a 64 bit CPU. (Note you DON'T have to be running x-64 of course).
I'm not sure if the Virtual PC software which this runs on supports any guest OS'es other than windows.
Better overall performance and a better screen adapter so you can use photoshop etc decently.
However you need to obtain separately, license your OS and install it just like a physical OS.
You don't need to use VT however - you will need this feature to run a 64 bit guest.
You can run VM's "In Teams". -- If you don't know what that means - you don't need it but for those that do this is actually quite a useful feature.
Easier also to "Clone" VM's -- not impossible with Virtual PC but this is straight from the menu with vmware.
P2V and V2P operation is possible.
So "You pays your money and takes your choice".
For an office type scenario Compatability mode is good.
For home users / developers I'd go the "separate software like vmware / virtual box" route.
As an experiment I'm going to see if I can do a V2P (Virtual to Physical) conversion of the XP mode built in XP system and see if it's "activateable" or even needs activation.
Will report back on that later.