Creating an image to use in Windows 7 XP mode?

"You can convert the XP to a virtual disk using Disk2vhd and use it with Microsoft Virtual PC (but I can't guarantee that you wouldn't need to reactivate its license).

You can use the technique described in this article :
Make Your Own VHD to XP Mode or even Vista Mode Ready:

However, in
lot of cases, you may want to just use
your already working XP VHD image for
XP mode in Windows 7. The good news is
it’s totally possible, and the better
news is it’s dead simple.

The key to make it work in XP mode is
to enable the new setting called Auto
Publish in the latest version Virtual
PC.

Therefore, as described in this article, you CAN replace the Microsoft's XP Mode VHD by your own generated by Disk2vhd."