Windows7 will have a Windows XP mode, XPM is built on the next generation Microsoft Virtual PC 7 product line, which requires processor-based virtualization support (Intel and AMD) to be present and enabled on the underlying PC. To run Windows XP in Windows7, users needs a fully licensed copy of Windows XP with Service Pack 3 (SP3). It will be made available, for free, to users of Windows 7 Professional, Enterprise, and Ultimate editions via a download from the Microsoft web site.
Windows XP Mode in Windows7 will address compatibility issues that come with Windows Vista and finally Windows Vista users go for Windows XP downgrade options. Windows XP mode is not available in Windows7 beta version it is expected in Windows7 RC1 or it may come with final version of Windows7.
Microsoft Posting on Windows Blog
Windows XP Mode is specifically designed to help small businesses move to Windows 7. Windows XP Mode provides you with the flexibility to run many older productivity applications on a Windows 7 based PC.
All you need to do is to install suitable applications directly in Windows XP Mode which is a virtual Windows XP environment running under Windows Virtual PC. The applications will be published to the Windows 7 desktop and then you can run them directly from Windows 7.
Windows XP Mode and Windows Virtual PC are best experienced on your new Windows 7 PC. We will be soon releasing the beta of Windows XP Mode and Windows Virtual PC for Windows 7 Professional and Windows 7 Ultimate.