I'm a VMware user, so I'm very used to that, although I do use XP mode (Virtual PC) on my workstation for hardware that don't have Windows 7 drivers and that works fine.
Cant use XP Mode on Home Premium tho.
No but you can use Virtual PC which is pretty much the same thing.

MMMM - According to the MS Site I am not eligible to run Virtual PC as I cant run XP Mode.
Does USB work for you?
I couldn't get it working last time I tried - Win7x64 host, XP guest.