I recently posted about Windows 7 application compatibility which was aimed at giving developers a steer on what they need to consider to make sure applications originally built for Windows XP work great on Windows 7 and Windows Vista. However there is a completely different approach which is to run the Windows XP applications inside a virtual machine using something like Virtual PC. It works – but it is not seamless to the user and typically involves an additional license for XP.
Which brings me to the very recent announcement of Windows XP Mode for Windows 7.
You will be able to run Windows XP-based applications alongside Windows 7 applications under a single desktop. Windows XP Mode includes a fully licensed copy of Windows XP with Service Pack 3.
Supersite have done a great job of explaining further with more details to come. Also check out this more detailed look at the internals.