Hi Jack,
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If you upgrade to Professional/Ultimate 64 bit, you can get XP Mode - which is an XP Virtual Machine running in Virtual PC that integrates its applications with the Windows 7 start menu
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Not too sure about that.
Anyway, if you allready have a version of windows 7 which works without problems, the cheapest, fastest and most practical way is to do an upgrade.
You could do a fresh install, but that could cost up to 150$ more than an upgrade and you'd have to deal with documents, settings and of course, just setting up the machine. So if I were you I'd stick with an upgrade.
Then, just install Virtual PC and run XP mode, and you should be in business!
The guest OS might run slower than on a normal machine, but only slightly. I find best to give XP mode 1GB of ram, and that didn't affect my 32bit machine, so you shouldn't have any problems.
Cheers,
Fire Cat