Technically, it can work but you would need to have at least 2 GB of RAM to make it worthwhile. When it comes to XP Mode though, it's generally recommended for something that absolutely cannot run in Windows 7, usually for Line of Business applications. Otherwise, compatibility mode is recommended as a suggestion as it is essentially a shim between the OS and the application tricking it into believing it's Windows XP. It's also why the virtualized registry edits and save locations exist.