How does Windows 7 licensing work for running the OS as Virtual Machines?

How does Windows 7 licensing work for running the OS as Virtual Machines? I plan on buying Windows 7 Ultimate Edition to run on an old Pentium 4. I also want to run Windows 7 virtual machines inside Windows 7. My question is two fold:
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Total answers/comments: 2

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bert [Entry]

"Sorry for the bad news but...

Yes, for each Windows 7 instance you run inside a VM, you'll need a license.

If you are running Windows 7 Professional, Enterprise or Ultimate, you get one licensed Windows XP for free with XP mode. Any other OS needs to be licensed indivudually, whether this runs on hardware or in a VM is not relevant."

bert [Entry]

"The 'legal' answer to this is that you need a license for each installation that is running. So if you have a win7 host and 2 win7 guests but ONLY run one guest at a time, you would only need 2 licenses and your guests could share one.

Otherwise, yes, you'll need a license for each to be legal.

As far as functionality, as long as you don't mind going though the licensing hassles you should be able to install using only one license. However, I've only ever done it with 3rd party virtualization not the virtualPC."
"The 'legal' answer to this is that you need a license for each installation that is running. So if you have a win7 host and 2 win7 guests but ONLY run one guest at a time, you would only need 2 licenses and your guests could share one.

Otherwise, yes, you'll need a license for each to be legal.

As far as functionality, as long as you don't mind going though the licensing hassles you should be able to install using only one license. However, I've only ever done it with 3rd party virtualization not the virtualPC."