Just an addendum re XP Mode and Virtual PC 2007. I have just bought a Packard Bell dot s netbook to carry around for work on the hoof. Preloaded with Windows 7 Starter, I also wanted it to run XP, but just don't seem to be able to install from a USB drive without errors before even the partitioning stage.
I thought I would attempt a to run a Virtual XP machine, which would be worth a memory Upgrade if feasible. Starter will not download VPC alone from the Microsoft web page which also offers XP Mode unless you tell it you have either Professional, Ultimate or Enterprise Windows 7 version installed. It then proceeds to validate the Windows 7 Starter and allows the downloads of the XP Mode, Virtual PC, and the patch for machines that have no built-in virtualization.
Installation (i.e. extraction) of the XP Mode VHD proceeds without issue, but the Windows 7 VPC 2007 installation fails. If you Google around, the Virtual PC 2007 for XP and Vista can be found, which downloads without validation, and installs on the netbook perfectly (I elected for compatibility mode, not sure it was necessary). I have now removed the XP Mode VHD. and replaced it with a full version.
The XP Mode runs fine under this VPC, but will not activate using the key provided under these conditions. It is a fine juggling act to allow enough memory from my 1GB installed for both host and virtual OS, but it can be done.
Thankfully, I had already installed Mint Linux on another partition, so I could rescue the Windows 7 bootloader which was trashed (together with the GRUB chainloader) each time I attempted to install XP either as a separate OS (understandable and documented) or as a VM on VPC, which was totally bizarre.
Repairs done to the Windows bootloader with a bootable Windows 7 .iso on a USB drive created another interesting permanent boot option - that of menu booting the Vista WinRE kernel on the System Reserved Recovery Partition, like a simple version of the XP recovery console. With options to repair leaving data intact, reset to factory default, or exit it is much easier than trying to trip the boot-time F8 Advanced Options Menu or catch the <Alt F10> system recovery mode.