Yes the legality question has been discussed quite hefty on the web in the past, I quote:
"The XP Mode VM's license comes with the OS (Windows 7 Pro and up), not from Windows Virtual PC, and Windows Virtual PC is not required. You are missing the XP Mode seamless windows if you don't run it with WVPC of course, but if you don't need or want that, running it in VirtualBox is fine. This all assumes you are trying to run the XP Mode image from Win7 Pro and above of course. Any other host and it wouldn't be licensed."
and
"End users should use Microsoft XPM only on Windows 7 Professional, Enterprise and Ultimate with VMLite.
On other systems, you need to use your own licensed Windows XP license.
It's the end user's responsibility to follow Microsoft EULA."
You're using XP Mode illegally should you run it on any other Win7 version, although it will via VMLite, and MS will even accept/activate it. I'm very sure MS know about VMLite and can easily step in and sue them but they've not done that.
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