As I see it:
- Microsoft has always provided backward compatibility for legacy applications;
- As far as the end user is concerned, things won't be behaving any different from what they normally expect.
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Because instead of having to limit their opportunities in developing new features due to backward compatibility, they can now basically say screw it. By bundling a virtualized version of the previous OS, it won't impact things as much when they change interfaces, system APIs etcetera - basically enabling them to be more innovative.
Furthermore, it'll also ensure 100% compatibility, which is otherwise a major reason for enterprise clients not to upgrade OSs.
i think we have all slightly misunderstood the whole xp virtual pc. it is more like the wine scenario in linux where the app accesses windows (xp) files as necessary but actually runs by itself without opening an xp session. sort of like the way calls to install to certain locations are now redirected to a users own app folder in vista and now in windows 7.
Jeff Atwood (one of this site's creators) has some thoughts on it: http://www.codinghorror.com/blog/archives/001258.html.