I've installed Windows Virtual PC in Windows 7 and have the XP Mode virtual PC working. I can run virtual applications with it and the integration features all work.
I used Disk2VHD to convert my existing XP Home drive into a VHD, so I can use it as a virtual PC, too. It works in general, but it sometimes pops up the "Could not enable integration features" error. I don't see the host computer's drives in the guest, and I don't see the guest's applications in the host's Start menu. Is this just because the guest is XP Home instead of XP Pro? Do I have to reinstall all these apps in the XP Mode VHD in order to get them as virtual apps? Could something else be preventing it from working?