I'd just get Windows 7 Professional and use XP mode - less hassle, and the license is included with Win7 Pro, so there's no licensing issues. You might have to download the files for XP mode from Microsoft.com, but you can be sure it's valid and legal that way. You'd be better off upgrading to 7 Pro than tracking down a copy of XP and hoping it's legal IMO.
Whether XP mode will work for you depends on what you plan to do in it. Regular office programs will work fine. At my last job it was used to run digital X-ray viewing software until we could afford to upgrade the program, and it served pretty well for that task. It's not very well suited for games, and might not be a good idea for graphic-intensive programs. But you're liable to encounter similar limits with any virtualization method.
Having used XP mode, I can give a little insight. You can run a full virtual copy of XP, and make it full screen. As long as you're running that virtual machine, there won't be too much difference from running XP natively. You can run applications seamlessly on the 7 desktop, but that's not the only option available.
If you have a fast computer with a decent amount of RAM, your VM will run very well. Not quite as fast as a native install, but pretty close. The one exception is starting an XP mode program up on the 7 desktop - that's slow, because you're booting the XP virtual machine as well as starting the program. When you close the program, the VM is hibernated, so you wouldn't have to wait when you reopen it until you reboot your computer. But since you want to simulate XP itself, that shouldn't be a problem.