As promised, Rafael begins his deep-dive into XP Mode for Windows 7:

To start, Windows XP Mode (XPM) is a new tight-knit solution of several already-available-today technologies. At the core of XPM are Virtual PC 7 (VPC) and the Remote Desktop Protocol (RDP) protocol. While VPC’s purpose is pretty clear, RDP’s may not. XPM makes heavy use of RDP features such as Remote Applications Integrated Locally (RAIL), compositing, and multi-monitor support.

Windows XP Mode will be installable on three Windows 7 SKUs: Professional, Enterprise, and Ultimate. More specifically, the license policy VirtualXP-licensing-Enabled is only installed and present in these SKUs, of which XPM checks upon use. The timeline for XPM release is still under wraps, but we’ve been told to expect a beta version next week and a final release roughly around the Windows 7 RTM timeframe.

Now, what are you going to see in terms of installable components? XPM comes in two parts – The VHD package – containing a preinstalled, shrink-wrapped copy of Windows XP with SP3 — and an optional Windows update (KB958559) that deploys a variant of the upcoming Virtual PC 7 (VPC) product. After installation, your XPM installation folder will contain an expanded VHD, a text file containing the product key, and some random words in license agreement form.

Read the post for more, and look out for Part 2...