Windows XP Mode (XPM) is a virtual machine package for Windows Virtual PC containing a pre-installed, licensed copy of Windows XP Professional with Service Pack 3 as its guest OS. Previously, both the CPU and motherboard of the host had to support hardware virtualization, but an update in early 2010 eliminated this requirement. Pre-installed integration components allow applications running within the virtualized environment to appear as if running directly on the host, sharing the native desktop and Start Menu of Windows 7 as well as participating in file type associations. Windows XP Mode applications run in a Terminal Services session in the virtualized Windows XP, and are accessed via Remote Desktop Protocol by a client running on the Windows 7 host.
Applications running in Windows XP Mode do not have compatibility issues, as they are actually running inside a Windows XP virtual machine and redirected using RDP to the Windows 7 host. For 64-bit editions of Windows 7, XP Mode may be used to run 16-bit applications; it includes NTVDM although it might be impossible to run 16-bit applications that require hardware acceleration, as Windows Virtual PC does not have hardware acceleration.
Windows XP Mode is available free of charge to users of Windows 7 Professional, Enterprise, and Ultimate. Users of other editions of Windows 7 are not eligible to download and use it. This restriction does not apply to Windows Virtual PC itself.
Windows XP Mode can also be run with the VMware Player and VMware Workstation. However, VMware products only import Windows XP Mode on Windows 7 Professional, Enterprise, or Ultimate to adhere with Microsoft licensing requirements.
Read more about this topic: Windows Virtual PC
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