Jammer, maar helaas
Microsoft has published several blog entries and press releases about Windows XP Mode, and in each and every one of them, the company is accentuating that Windows XP Mode is targeted towards small businesses, to help them move from Windows XP to Windows 7. For larger companies, Microsoft advocates Enterprise Desktop Virtualization 2.0 (MED-V). There is no indication that XPM is a first step in a push towards moving all backwards compatibility in Windows towards a VM.
Of course, sharp folk had already realised this by looking at who would get Windows XP Mode for free: users of Windows 7 Professional and up. If XPM had really been the future of Windows' backwards compatibility across the board, everyone would be able to download it.
So, it seems that our initial enthusiasm has been a bit, well, premature. I guess all the excitement about XPM on OSNews and other parts of the web illustrates all the more the longing there is among Windows users towards a world where backwards compatibility does not hold back Windows' development. It would be great if Microsoft made a clear statement about this subject.
How XPM works
A lot of information on how Windows XP Mode works has also made it to the web. For instance, Rafael Rivera explained how the application publishing (the "coherence" or "unity" technology of XPM) works. It makes use of some key RDP technologies: Remote Applications and Application Publishing. The basic gist of the story is that these technologies normally allow you to install applications on client machines (complete with file type associations and shortcuts), but have them run on a server machine in the network.
XPM allows you to do the same, but then with the virtual XP machine acting as the server, and the Windows 7 host as the client. Some additional services within the XP virtual machine monitor the "All users" Start menu, and pushes those applications down to the host Windows 7 machine.
Currently, XPM does hit a limitation thanks to Terminal Server licensing. "Only one user or channel can be open at any given time," Rivera explains, "This means you cannot execute Internet Explorer 6 while running maintenance tasks within the virtual machine, like installing updates from Windows Update." There are tricks to get around this one, though.