If that is the case then you’ll have to uninstall the update, which may not be advisable, or just wait until Microsoft finally realizes that support for virtualization in Windows 7 is important.
Some people have reported that they have been running Microsoft Virtual PC 2007 on Windows 7 for a while until one of Microsoft’s update caused it to start displaying the Microsoft Compatibility Assistant message that you see above. However, I know that others have been able to make this work. I tried it but the Compatibility Mode did not work for me. Try and run Microsoft Virtual PC 2007 in compatibility mode by right-clicking the setup.exe and selecting a compatible OS on the Compatibility tab, as shown below. Make sure that you have rebooted your computer after removing Windows Virtual PC and Windows XP Mode. Make sure that you remove Windows Virtual PC (KB958559) by going to “View installed updates” as described above. Make sure that you have removed Windows XP Mode from the Control Panel, Uninstall a Program. Here are some of the techniques you can try to troubleshoot the installation of Microsoft Virtual PC 2007 on Windows 7. Microsoft does not officially support Microsoft Virtual PC 2007 on Windows 7. Of course, if you never installed Windows Virtual PC and Windows XP Mode in the first place then you should have no problem installing Microsoft Virtual PC 2007, even though it is not supported on Windows 7.
Now you should be able to install Microsoft Virtual PC 2007. Right-click and uninstall the update then restart the computer. If you do not see Windows Virtual PC listed, click on the link in the upper left-hand corner “View installed updates.” You will see Windows Virtual PC (KB958559) listed in the Microsoft Windows section, as shown below. If you have removed Windows XP Mode and are still getting this error then you need to make sure that Windows Virtual PC has also been removed in Control Panel, Uninstall a Program. So how do you run Microsoft Virtual PC 2007 on Windows 7? In order to install Microsoft Virtual PC 2007 on Windows 7 you need to make sure that you first remove Windows Virtual PC and Windows XP Mode or else you will get the following message. And before you even ask, no you can’t install Microsoft Virtual PC 2007 in a virtual machine inside Windows XP Mode because you can’t run Virtual PC inside a Virtual PC. Bummer! You can either install one or the other, but not both on the same computer. Now what happens when you install Microsoft Virtual PC 2007 (yes, I said “Microsoft Virtual PC 2007”, not “Windows Virtual PC”) on a Windows 7 computer? Well, you can’t. It can run on computers that do not support hardware virtualization. Microsoft Virtual PC does not have that requirement.
One of the major differences between the two versions is that Windows Virtual PC requires that your computer support hardware virtualization. Windows Virtual PC is a special version of Virtual PC specifically designed for Windows 7. Once Windows 7 was released, Microsoft offered Windows Virtual PC, which along with Windows XP Mode, allows you to run older applications that ran on Windows XP in Windows 7. Before Windows 7 Microsoft offered Microsoft Virtual PC 2007.
If you're looking for a free program that will allow you to virtualize other versions of Windows on your PC in the most simple fashion, download and try out Microsoft Virtual PC 2007, the alternative developed by Microsoft.If you are new to Windows 7 then first of all I want to make sure that you understand the different versions of virtual PCs offered by Microsoft. Another of the main features of this tool is that it's possible to share folders between the virtual machines and our operating system with a single click of the mouse, thus making it very easy to share files. The program will allow us to manage the resources that each of the virtualized systems will be able to use (connection to the Internet, access to external drives, amount of RAM memory, space on the hard drive.). One of the greatest appeals of this tool is how easy it is to handle, thanks mainly to how simple its interface is and the assistants that will guide us step by step in the creation of each one of the virtual machines.
Microsoft Virtual PC 2007 is the solution offered by Microsoft, thanks to which we'll have the opportunity to virtualize almost any version of Windows, thus being possible to use applications without them being able to affect our computer.