if i had to guess.... it's quite possibly because XP Mode in Windows 7 might not have come with compatible drivers for every possible video card.... seeing as it'd need drivers for both Windows 7 and XP at that point. the instance of XP is probably lacking those drivers.
Again... just a guess.... but also quite easily possible.
Have you tried "VMLite Workstation\XP Mode" which works in 32bit and which i find faster than Windows Virtual PC\XP Mode.
The next build will be available in a couple of weeks: which will support DirectX 3D acceleration and video 2D acceleration. For example, you should be able to run Google Earth in DirectX mode, and play games with good performance
Ep, glad to see you come back and tidy up...did want to ask a one day favor, I want to enhance my resume , was hoping you could make me administrator for a day, if so, take me right off since I won't be here to do anything, and don't know the slightest about the board, but it would be nice putting "served administrator osnn", if can do, THANKS