One of the biggest hypes about Microsoft’s newest version of Windows is the new backward-compatibility features when using XP Mode.  XP Mode (or XPM, for short), which is essentially a virtual machine running a separate, retail installation of Windows XP, allows users having difficulty running programs that aren’t fully compatible with Windows 7 or Windows Vista to use their programs as they would on a system natively running Windows XP.  This is especially exciting for users running 64-bit systems as it enables them to have 16-bit support again, since Microsoft removed the subsystem for it in all the x64 builds.

Though it doesn’t actually come installed with Windows 7, it’s available as a free download if you have Windows 7 Professional, Enterprise or Ultimate.  Unfortunately, Microsoft decided that Windows 7 Starter, Home, or Home Premium users haven’t paid enough to get a free licensed copy of Windows XP on top of their purchase (The guys at mydigitallife.info seem to have found a workaround to install XP Mode in Windows 7 Home and Home Premium).

XPM also requires a processor with Virtualization Technology (VT) capabilities, which are becoming more common, but many users will find their processors lack this capability.  If you’re unsure, you’ll have to check in your system’s BIOS if your processor supports the option for AMD-V or Intel-VT, or by running a tool called SecurAble, which tells you if your processor is capable of harware accelerated virtualization (HAV).
securable processor feature tool

If you computer doesn’t support hardware accelerated virtualization, How-To-Geek has put together an excellent guide to running XP Mode using VMWare which proves just as good or better than Windows Virtual PC in some tests.  If you can’t run XP Mode using Windows Virtual PC, try giving it a shot with VMWare Player.

Now, if you know that that your computer supports HAV, there are two things left to do.  You will need to get Windows Virtual PC and Windows XP Mode from the official Windows Virtual PC homepage or directly from Microsoft’s Download Center and install them.

After the installations are done, you’ll need to restart your computer, and after that, you can click your Start menu and you should see a new entry for “Virtual Windows XP”.  You’ll be prompted for initial setup configuration just like starting up Windows for the first time.

At this point, once you get a desktop screen to show up, you can go ahead and install and use your programs just like you would normally in Windows (selecting “All Users” when doing installations).  Now you can close the XP Mode virtual machine and still access all the programs via the Windows 7 start menu without even needing to bring up the XP Mode desktop.