VMware Workstation Performance

"Let me rephrase: your laptop was using Win-XP 32-bits and you've copied that installation to a virtual machine. Your laptop now uses Windows 7 but that doesn't matter for the whole question, right? Then again, your laptop seems to be powerful enough to run a 64-bits Windows 7 system so the VMWare host needs to be powerful enough to host it all.

First of all, you should always expect performance to go down if the host is as powerful as the original system. There's this virtualization layer in-between which adds some delays. I did the same with a laptop of mine, but the virtual machine I created is hosted on a much more powerful system, thus performance went up.

Possible bottlenecks could be an installation of SQL Server or other database inside the virtual machine. These tend to eat up a lot of resources. It might be better to install SQL Server on the host instead and make the VM connect to this ""external"" database.
Other problems could be the amount of RAM that the virtual machine has. Even though XP works well with 512 MB, I tend to give my VM's up to 2 GB of RAM. That way, the VM will use less of it's own swapfile, simply because it has more memory available.

Another bottleneck could be the harddisk that contains the VM. If this is connected to your system through an USB cable then it will definitely be slow. I tend to give VM's two disks. One with the operating system which will be located on the fastest disk in my host and the other for data which could be any disk. Often I use a network share for this, and share a disk/folder on the host. This way, data is available from inside and outside the VM.

The system disk would be up to 8 GB in size and I tend to claim this disk space immediately, instead of having VMWare increase the disk size little by little. It does increases performance but eats up a lot of disk space.

Don't put this virtual machine on a compressed disk to save disk space! Disk compression tends to make disk access a bit faster since it actually has to read less data from disk but it also puts a bigger strain on your processor since it needs to decompress this data again. It puts a bigger demand on your CPU, which might even increase the heat inside your system. With laptops, the system tends to decrease the CPU speed when the fan can't cool down the system enough."