I downloaded what I needed from Microsoft, but don't have a clue what to do next to make it work. I did this so that I eventually could use OE (I can't take Windows Live any more!). Can someone help me, please?
You need to have Pro or Ultimate to run XP mode in Win 7 as Brett said. Even if you do XP mode has some issues with certain boards so you may need to update your BIOS especially if you have a gigabyte board. If you have a Home version of Windows then you're going to have to use Oracle Virtual Box and install on it a valid copy of Windows XP.
You can also download VMWare Player which is free and works on any version of Windows 7. Like megamanx00 says, you will still have to own a license for Windows XP.
However, if you have a working XP computer, you can use the free VMWare Standalone Converter and convert your XP machine to a VM. It works great and there's a ton of support for it all over the internet.