The feature, however, was only in rough form in the beta candidate and previous release candidate builds.  Yesterday Microsoft release a new release candidate that at last added a near-finalized version of this functionality.  The build is available here and runs Windows XP SP3. 

Aware of security risks, Microsoft has accompanied the build with a warning that users should install anti-malware and antivirus software to protect Windows XP.  It has been speculated that malicious users could exploit the virtual machine's lack of certain security features -- such as ASLR (Address Space Layout Randomization) or an Internet Explorer Protected Mode -- to perform guest-to-host attacks.  This problem is minimized by the fact that the install comes with a firewall and that Microsoft will be offering free antivirus support for XP as well as Vista and Windows 7 this fall (a second beta is expected to drop soon).

Brandon LeBlanc, a Windows communications manager at Microsoft comments on the new RC build, stating, "Windows XP Mode is specially designed for small and medium-sized businesses to help ease the migration process to Windows 7 by providing additional compatibility for their older productivity applications. The newly updated Windows XP Mode now works with the RC and RTM versions of the Windows 7 Professional, Ultimate and Enterprise SKUs."

The differences in functionality of the new XP Mode and the old are subtle, but significant. Windows XP applications running on the Windows 7 task bar can now be accessed by right clicking.  Disk sharing between Windows 7 and Windows XP mode can now be disabled and users can choose where there Windows XP differencing files are stored.  USB devices can now operate within Windows XP without needing to go into fullscreen mode, useful for accessing content from programs like Word 2003 running in XP Mode.  Finally, a tutorial about XP Mode is now included, a great feature for new users.

Tom Quillin, director of Intel vPro Ecosystem Development lauds the feature, praising that its not only a fun toy for home users, but a valuable asset to businesses.  He states, "The increasing prevalence worldwide of PCs based on Intel Core 2 processors with Intel Virtualization Technology is enabling a variety of new applications that provide business opportunities for greater manageability, security and cost reduction. Used with Windows XP Mode, Intel Virtualization Technology helps small- and medium-sized businesses migrate more efficiently from Windows XP to Windows 7.