There is a lot of buzz on the windows 7 virtual XP embedding as it seems an unusual twist for compatibility problems. The opinions are varied, and here is my 50 cent.

There are 3 types of opinions:

In my opinion, the merit is not in the virtual solution as a virtual machine but in the way the actual problem is brushed away. Windows vista, and by extension windows 7, suffer from several problems: speed on low end hardware, large memory requirements, and compatibility problems with legacy software. This is already demonstrated in the reviews of windows 7 performance like PC World.

There are several reasons people go back to windows XP:

All of these make the reasoning for adding XP to windows 7 a very peculiar choice as they don't really address the problems of vista / windows 7. The choice is actually a demonstration of technology, to actually push the virtualization in a same fashion done with the explorer, but this time with a "reason". From users perspective the virtualization does not give a speed or user friendliness advantage, but it does give Microsoft an answer to those requiring downgrade rights.

As a customer and engineer, the stunt from Microsoft is shady at best, because it does not really address the problem, it makes a heavy system heavier and increases the overall complexity. The twist here will be the impact on the market, being even les favorable with windows 7 than with vista.

Addenum:

After some digging in the market share of virtualization solutions, the reasoning became obvious. Its a marketing scheme to make people used to Microsoft virtualization solutions, and perhaps take a bite of VMware market share. via introducing a VM within windows 7, Microsoft can help IT promote Microsoft solutions and make it more visible. It does not actually serve the user due to the many limitations such a VM inherently has.