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Does anyone have experience running Steam in a Windows XP virtual machine. I was wondering if this works and how well does it work.

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While there's a possibility that it may technically be possible, the likelihood of it working well at all is incredibly slim. The Steam client itself will run fine, but any of the games you would get through Steam are going to need accelerated graphics. Most virtual machines don't have accelerated graphics, and even if they do, aren't going to have nearly as good of performance as they would running directly on the graphics card. Everything in a VM is going to be slower - processor, disk writes (especially), and graphics. The likelihood of a VM meeting a game's system requirements, let alone running it well, is very, very small.

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