Secret No More: Revealing Windows XP Mode for Windows 7 - SuperSite Blog:
PM 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, much like Hyper-V, Microsoft's server-side virtualization platform. However, XPM is not Hyper-V for the client. It is instead a host-based virtualization solution like Virtual PC; the hardware assistance requirement suggests this will be the logical conclusion of this product line from a technological standpoint. That is, we fully expect future client versions of Windows to include a Hyper-V-based hypervisor.