This one sounds like fun.

Microsoft have announced a new "XP Mode" for Windows 7. Apparently it will run as a sort of Virtual Machine on Win7 boxes, but will be somehow integrated with it.

XP Mode is a copy of Windows XP SP3 running in a special Virtual PC VM within Windows 7. It's not just a VM; special integration allows you to install programs inside XPM and have the icons show up on the Windows 7 desktop, so that you can run them seemingly as first-class Windows 7 apps. It is a free download for the Professional and Ultimate editions of Windows 7; it will not be available for the cheap Home version.
We don't really have enough details on the security implications as yet, however:

What of security and this new mode? XPM is Windows XP, so some advances, such as ASLR (Address Space Layout Randomization) and IE Protected Mode won't work there. It is XP SP3, which helps, and Microsoft might be aggressive about some defaults, such as by turning on DEP (Data Execution Prevention) and automatic updates. All of these options would be manageable under group policies, so whatever the default a business can make it do what they want.
I guess only time will tell?

I can see the business logic as it will address potential legacy applications issues and counter the resistance that Vista experienced in institutional deployments.

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