For XP mode in Windows 7, you better be sure your CPU can do hardware virtualization, otherwise XP Mode won't work.
Also, don't expect XP mode to work with games, especially 3d accelerated ones.
You can go to Microsoft's website for XP Mode to find a utility to help you determine if your CPU can handle hardware virtualization.
If in the end you cannot do XP mode because of your CPU, you can get still use Virtual PC 2007, Virtual Box from Sun, or VMWare Player (which can now create virtual machines, not just play them). Of course, you need to have the install media for the operating system you want to virtualize. I prefer VMWare Player. It definitely seems to be one that works the best. My next choice would be Virtual Box from Sun. Either one works really well. BTW, all three are free with no expiration date. VMPlayer is completely free for personal home use with no expiration date, but you do have "register" your email with them, but they don't spam you.
What's nice about the XP Mode is that Microsoft has it integrated with your Windows 7 desktop, so XP Mode programs running appear on your task bar and look as if they are running in native Windows 7. Also, they provide you with an XP image to use, so if you don't have install media for XP, you're not out of luck.
As it is, the reason I use a virtualized OS is due to development. I do programming and setting up all the different tools and services I need can bog down my system and my wife hates it. Also, with a virtualized system, I can only install the things I need for development (IIS, Visual Studio and any tools needed, Oracle client to access my Oracle Linux Server, etc) without it affecting my day-to-day programs (and games) I have installed in Windows 7.