Was this issue ever figured out, last post was last year.
I am having the same issue.
I run setup for windows XP mode, setup goes through almost to completion, and at the very end it fails.
the progress bar at bottom is saying Setting up Windows XP Mode for first use..... and bar is green
then bar turns red and setup screen says SETUP FAILED Cannot complete Windows XP Mode setup
a separate small window opens up that says Could not complete setup. Please try again. Left both windows open for 20 minutes. no change.
4 files in /users/DAREN/Appdata/Local/Microsoft/Windows Virtual PC/Virtual Machines
Windows XP Mode type "Virtual machine Hard Drive Image"
Windows XP Mode type "Virtual Machine Settings File"
Windows XP Mode.vmc.vpcbackup type "VPCBACKUP file"
Windows XP Mode type "Virtual Machine Saved State" {The saved state file dissapeared when I OK'd the error window and the setup process quit.}
No Discs are in the optical drives, I disabled Norton antivirus and norton smart firewall just for good measure.
Windows 7 64 bit fully activated (or Validated?)
ASUS crosshair V formula motherboard with AM3+processor (FX-8150)
Any Suggestions?