The USEPMTIMER switch is not related to Windows 7... check the link for a full explanation on it. Windows 7 should not be included in the Windows XP boot.ini so it's a mistery to me why it even appears on the Windows XP Boot option screen.
See if msconfig makes any reference to Windows 7 and delete it. Start \ Run \ type; msconfig and press Enter... in the General tab, select "Use original BOOT.INI and see in the BOOT.INI tab if you see a reference to Windows 7, see if a delete button is active. Also see if Windows XP is not set as the default OS and using "Set as Default", or "Move Up", set it as the default OS and next reduce the "Timeout" to 0 so the boot selection screen doesn't show and it boot straight up to XP.
Also look in...