XP Mode = eh. Had to install it today, because some Microsoft J# component in VMWare vCenter admin blew up on install in Microsoft Windows 7, and it's a known incompatibility.
So for something that is supposed to be part of Windows 7, I had to go manually download the VM, and some extra support files. After installing, it's buried in the start menu, and starts up the first time with XP having it's own desktop. Tried to drag and drop the installer into it, no go. Expected it to map common folders like "My Documents" to the same place in 7, nope. Finally found it had connected my real hard drives into the VM like a network share.
Once the app was installed, it ran still inside the XP box. Had to shut it all down, then run the app from the 7 start menu to get it to show up as just an app without the XP box around it.
Oddly Windows XP running under Parallels Coherence or VMWare's Unity on OS X is more integrated then Windows XP on Windows 7.