Microsoft has officially released an Update for Windows 7 that allows users to install XP Mode on computers that do not support Hardware Virtualization.KB977206

VMWare Player 3.0 has some very interesting features.
You can now create VMWare Virtual Machines from within.You don’t have to use VMXBuilder .It supports Windows XP Mode without Hardware Virtualization.However this does not work on Home editions of Windows 7 and earlier versions of Windows.

ImDisk is a virtual disk driver for Windows NT/2000/XP/2003/Vista/2008. It can create virtual hard disk, floppy or CD/DVD drives using image files or system memory.

Windows Virtual PC requires processor capable of hardware virtualization, with AMD-V™, Intel® VT or VIA® VT turned on in the BIOS to run XP Mode in Windows 7.However , VMLite a virtualization technology based on VirtualBox , can run XP Mode in Windows even if your processor is not capable of Hardware Virtualization.

When you boot an unattended Windows DVD(which contains autounattend.xml), you are directly taken to the installation routine.There is no option to launch the recovery environment.However I found a way of accessing Windows Recovery Environment.