Choosing between XP Mode and VMware for development on Windows 7

You'll have a lot more versatility with a standalone VM product vs XP mode, since XP mode can only do one thing - be XP mode. XP mode is really just designed for application compatibility, not for managing a virtual infrastructure. A good VM manager will let you build whatever infrastructure you need, spanning as many VMs as you need.

My suggestion would be to purchase the proper version of Windows 7 for XP mode, to give your self the option of using it, and plan on implementing VMWare Workstation into your development workflow. You'll still need to acquire the proper licenses for using with VMs, but you may already have access through MSDN or similar.

Make sure your new CPU supports hardware virtualisation, otherwise you can forget about the XP Mode option. Most recent AMD chips do, but a fair number of recent Intel don't regardless of the number of cores.