It's important to note that Windows XP Mode is limited to creating a 32-bit virtual environment. This is true even though the underlying Windows Virtual PC software is itself 64-bit and running on the x64 version of Windows 7. So, while you can install 32-bit Windows XP (or 32-bit Vista or 32-bit Windows 7) as guests inside the Windows Virtual PC environment (which is, after all, a generic VM solution with some additional integration for the Windows XP Mode image), you cannot install 64-bit Windows XP or the x64 versions of Vista or Windows 7.
Q. Can I run 32-bit Windows applications under 64-bit Windows 7?
A. Yes. Virtually any 32-bit Windows application that is supported on Windows XP can run unmodified under 64-bit Windows. This is made possible by a technology known informally as "Win32 on Win64" (WOW for short), which translates 32-bit API calls from a legacy Win32 executable into 64-bit API calls that can be serviced by the native subsystems of 64-bit Windows 7. The net result is that 32-bit applications run seamlessly on 64-bit Windows and, thanks to optimizations in current generation Intel and AMD CPUs, at or near full speed. The few exceptions to the WOW compatibility rule usually involve applications that rely on one or more proprietary legacy 32-bit device drivers that have no equivalent 64-bit versions.
Note that the WOW concept is really nothing new. A similar technique was employed by the earliest versions of Windows NT to support legacy 16-bit Windows 3.xx applications.
Q. When I install a 32-bit application under 64-bit Windows 7, I can't see its registry entries. Why is this?
A. The 64-bit versions of Vista and Windows 7 include the WOW translation layer for running 32-bit applications (see description above). In addition to translating API calls, 64-bit Windows isolates registry changes made by 32-bit applications and redirects them to a special sub-key within the appropriate registry hive.
For example, a 32-bit application that updates a key within the HKEY_LOCAL_MACHINE\Software structure will automatically have its changes redirected to the Wow6432Node key underneath the primary Software key. Expanding this key will reveal all of the 32-bit application registry keys and values that have been automatically redirected by WOW.