G0ddard, could you elaborate on how you don't have to pay for an XP license to run it under Windows 7 XP mode? I couldn't follow you (you're way ahead of me here). Thank you.
Windows 7 (rather, the editions, such as Professional) that support Windows XP Mode are essentially *bundled* with a virtual machine image of Windows XP that *only* runs under those editions of Windows 7. That's what you are paying for with Windows 7 Pro et al., the ability to drop down to Windows XP for whatever applications you wish.
Although, it's not physically bundled, rather, it's bundled in a licensing and being-able-to sense. The Windows XP image is not on the installation DVD for Windows 7. But it is available for download from Microsoft Update. I don't know why they made this choice - probably, the Win XP image could not be fitted onto the distribution DVD.
That Windows XP virtual machine image is "locked" to Windows 7. It's preactivated, so you do not see activation take place for Windows XP. Once it is installed into a Virtual PC image it just starts up all happy and everything.