Can't launch Windows XP Mode from Windows 7 Professional

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I can't say for sure, but I REALLY doubt that it will work – Windows XP mode in Windows 7 is essentially a Virtual PC virtual machine.

This means that you tried to do a double virtualization here – run Virtual PC virtual machine with Windows XP inside the Parallels Desktop virtual machine with Windows 7. Even if it worked I think it would consume way too much resources for making two nested virtual machines work.

Therefore I would advise to avoid using Windows XP mode if possible – for example try using the compatibility mode:

http://windows.microsoft.com/en-US/windows7/Make-older-programs-run-in-this-version-of-Windows
 
It indeed works (of course with the latest update from Microsoft, which removes the requirement for hardware-assisted virtualization in XP Mode: so it can also be run inside a VM), and with reasonable speed, in VMware Fusion 3: thus, it should work also in Parallels Desktop 5.

Maybe there is some configuration that must be added/changed in the Win7 VM?

Strange that it doesn't work out of the box (I tried it also in Parallels, and indeed get the same error, which is absent in VMware)...
 
While XP mode now can run without hardware virtualization that doesn't mean that it will run in a virtualised environment (as far as I know it won't). Hardware virtualisation refers to a feature of modern Intel (and I guess AMD) processors, but there's a lot more that's virtualised in a Parallels VM (sound, video, ...) - the same applies to VMWare's Fusion.

It's a way better idea to set up a separate VM with XP as the operating system. You can run your Windows 7 and your XP VM concurrently if you like.
 
It's a way better idea to set up a separate VM with XP as the operating system. You can run your Windows 7 and your XP VM concurrently if you like.

this would work as well, but - as I understand Windows XP mode in Windows 7 does not require to purchase an additional license while XP in separate VM will definitely require one.
 
^^^ Exactly - and also because it might be "geeky" to run a VM inside a VM! :-)

But, first of all, to avoid having to run a separate Boot Camp partition only because of XP Mode: with the sadly too well known issues for Windows "cross-"activation (natively in Boot Camp, and then in the Parallels/Fusion VM: it doesn't always work as intended).

Now, up to the Parallels engineers to explain why it doesn't work in Desktop 5, while it works flawlessly in Fusion 3...
 
... that *is* geeky indeed. We're currently trying to get a middleware application (for content assets delivery to our company's websites) to run in a VM that's running inside another VM which is spread across several physical machines. Fun once we get it to work.

For added geekiness, may I suggest you install SheepShaver (a 68040 Mac emulator) in your XP VM that you're running in your Fusion VM on your Mac; on the SheepShaver, run miniVMac (a Mac Plus emulator). Well it's not quite all VM's running on top of each other, I know, but it'd sure be a roundabout way of opening up those Hypercard stacks :-D
 
It is nearly impossible to achieve since it will be virtualization inside a virtualization.

This doesn't work in any version of Parallels Desktop.
 
It is nearly impossible to achieve since it will be virtualization inside a virtualization.

This doesn't work in any version of Parallels Desktop.

I'm surprised to hear someone from Parallels say that because XP Mode installed and runs flawlessly on my i7 iMac under Parallels 6 and Windows 7 Professional 64-bit. However, on my MacBook Pro running the same Parallels/Windows setup, it installs fine but won't complete the first use setup procedure; fails every time.
 
I have encountered exactly the same issue as Pelican18TQA4. I have been working with the Parallels support team (a different person every day, somewhere in India) who are all very nice, but appear to know nothing about this. I am glad to see that it is not just me. I suppose it must relate to different hardware architecture on the laptop. Oh, well.
 
Error on MacBook Pro > Parallels 6 > Windows 7 Ultimate 64-bit > Windows XP Mode

I have a situation similar to Pelican18TQA4:
MacBook Pro 17", OS X 10.6.7, 3.06GHz Core 2 Duo, 8 GB RAM
Parallels 6.0.11994
Windows 7 Ultimate 64-bit with all the latest updates, including Windows Virtual PC update (KB958559).
Since I should install Windows XP Mode first before Windows Virtual PC, I removed the update. I then installed Windows XP Mode, followed by the Windows Virtual PC update (KB958559).
When I launched Windows XP Mode from the Start menu for first use, it gave me an error at the end of the set up without giving any further information.
 
In Parallels Desktop 7, the same thing happens for nested XP Mode with Windows Virtual PC: it fails just before the end of the configuration. Why is it still so? In VMware Fusion 4, for example, it works OK (as it also did in Fusion 3).

But the good news is that now nested XP Mode works with VMware Player 4 (and also vCenter Converter 5, installed in client-server mode, in order to import the XP Mode VM): and the speed is quite acceptable, indeed, at least for "light" uses.

So, if you want to run XP Mode inside a Parallels Desktop 7 Windows 7 VM, just use VMware Player 4 instead of VPC: it just works*...

* Just remember to add vmx.allowNested = "TRUE" to the Player XP Mode VM's configuration file, otherwise the VM won't power on. More info, for example, here (both towards the end of the main text and of the comments)...
 
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