Windows XP VM can only be run if your version is Proffesional or Ultimate, not on the lower verisions of windows 7.
Link if you have the Prof or Ultimate Version:http://www.microsoft.com/windows/virtual-pc/
Have you tried to install using the compatability mode. Right click the Intall program (exe) and select compatabilty mode and select the correct version, ie win xp Sp1.
3rd option (least desirable).
I use QBasic prof. I downloads a program call DOSBox which is a Dos x86 emulator which allows me to run Qbasic prof. I think there is on for Xp to allow running XP on Home premium, tring to find a link.
Looks like it's called virualBox. See:http://www.google.com/#hl=en&sugexp=ldymls&pq=virtualbox%20download&xhr=t&q=virtualbox+for+windows+7&cp=23&pf=p&sclient=psy&safe=active&source=hp&aq=0&aqi=&aql=&oq=virtualbox+for+windows+&pbx=1&bav=on.2,or.r_gc.r_pw.&fp=f5b1d5aa1ea1fb55