Why do I need Windows XP mode in Windows 7?
Solution 1:
The XP mode is precisely what you said it was - for people who use old applications (or games, as it may be) that for some reason or other cannot be replaced or upgraded.
Imagine an old accounting system which might still work, but have a rather costy upgrade that can't be justified to get past bookkeeping. Or where the developing company has died off, and since it is closed source, no-one can maintain it.
Solution 2:
A technical reason for "XP mode" is to support 16-bit code. On an x86 CPU running in 64-bit mode it is "expensive" (read: slow) to change the mode of the processor to allow 16-bit programs to execute properly. It's so bad that Microsoft didn't put in any infrastructure into any 64-bit versions of Windows to support 16-bit code.
"XP mode" runs a virtual 32-bit Windows XP instance, and the virtualiation environmnet handles the 16-bit / 64-bit transition. In effect, "XP mode" is the 16-bit support infrastructure that Microsoft never put into prior versions of 64-bit Windows, with the added bonus of having a full Windows XP 32-bit environment to suppot problem software that doesn't want to run in Windows 7.
Unless you've got software that uses either 32-bit kernel-mode drivers (or the aforementioned 16-bit code on 64-bit Windows) you'll very likely never have need for "XP mode". The VAST majority of 32-bit Windows software runs w/o any problem in the "compatibility modes" already provided in every edition of Windows 7.
Solution 3:
I had the same question. It became a really important feature for me as we're rolling out new computers with lots of RAM in them, and 32 bit just doesn't handle loads of RAM well. So then we had a problem with some applications and drivers not working on 64bit Vista (or '7). Online banking with smartcards was one application.
So the answer was to use Windows 7 RC Windows XP mode to allow Internet Explorer to 'bleed through' into the real OS, which works really nicely. This means IE appears as if it's on the local desktop (still one IE icon click) and it runs up the VM version of IE without any other interface clutter.
I'd grab the RC and take a look if I were you...
Solution 4:
Internet Explorer 6. Many web-based, corporate applications require ActiveX Controls that only work on IE6 or websites that only work properly with IE6. I think this is actually irresponsible on the part of the vendors of these applications, but that's another discussion.