A Mixed Review For Windows 7's XP Mode
The Register writes "If one thing excited people more than the disclosure of the Windows 7 Release Candidate's availability, it was the news of Windows 7 XP Mode. The Reg's Tim Anderson gave Windows XP Mode a mixed report in his review of the Windows 7/Virtual PC combo. Overall, the level of integration is excellent and Windows XP Mode showed strong potential. However, responsiveness of applications was sluggish and the seamless integration between Windows 7 and XP proved confusing."
This is a VM integrated graphically into the Win7 GUI. FTA: "Most of the features called Windows XP Mode are really features of the new Windows Virtual PC." Their "virtual application support" for the top Win7 editions just makes it more convenient.
"sudo aptitude install virtualbox-ose"
Install 8.10 and the guest additions, enable seamless mode, boom, it's the exact same thing Microsoft is doing with Windows XP on Windows 7
XP mode is for use of internal apps, NOT games. That is why it is shipping with the business line.
It's not designed to run 3D games. I read the article that the OP is referring to in his "the word I heard" comment. The problem isn't what XP mode can't do, the problem is that the person who wrote the article wanted XP mode to be a fully functioning XP install hiding behind his Windows 7 install that can do anything his old PC could do. It's not, and it's not intended to be.
Windows XP mode is basically the Windows 7 version of Vista Enterprise Centralised Desktop (VECD) that was released a few weeks back. It is intended to provide a layer of compatibility for legacy business applications to help drive adoption of Vista and Windows 7. Microsoft built it because there are a large number of legacy business apps that simply won't work with the Windows Vista/7 model, and that was a major factor in slowing business adoption.
When Vista was first released Microsoft included licenses to run virtual copies of Windows with the Enterprise/Ultimate versions of the OS so that legacy applications could still be run via VirtualPC when the host machine was upgraded to Vista. Apparently that was too confusing for some people, so they tried to create a more seamless integration of VirtualPC with VECD/XP Mode, so now applications are presented in a similar fashion to Terminal Services RemoteApp or Citrix sessions. That's it.
Just FYI, you can check to see if your processor supports the virtualization mode needed for this feature here:
http://www.grc.com/securable.htm