XP Mode is free, easy to install, works reasonably well, and benefits from a nice integration with the Win7 Start menu. All to the good. My preferred virtual machine, however, is VMWare Player. It just seems to work better for me. Player does require an XP license, but you probably have plenty of those in hand.
The big drawback to the virtual machine approach to preserving XP is that you now have two PCs to maintain, and the user needs to have a good understanding of PCs in order to benefit from the hybrid. So, even though I have a VM on my own machine, most of the machines I support stay with one OS.
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