It's not like Wine. In fact, it's much more virtualisation (like VMWare or VirtualBox), where the whole XP OS has been virtualised. The only difference is that Microsoft are providing the XP license with 7, whereas if you did it yourself, you'd need a separate XP license.
Half the time the reason why Windows application software doesn't work so well on newer Windows OSes is that developers took shortcuts that they weren't supposed to. Suddenly that doesn't work for a newer OS.
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