[X-Istence]

Microsoft is virtualising Windows XP on top of Windows 7 on the x86 platform. That is for their XP mode that is available in Windows 7.

Microsoft in Windows 7 for legacy applications allow the users to select a target OS, at that point it is not virtualising that OS but having certain system calls act like they would in those older versions of Windows. As far as I am aware as a developer nothing gets "virtualised", it is a compatibility shim. See this wikipedia article:

http://en.wikipedia.org/wiki/Windows_on_Windows

This is how Windows provided support for 16 bit on Windows 32 bit, and how Windows provides support for 32 bit on Windows 64. Clever piece of code.

What you are suggesting is almost impossible on Mac OS X without also emulating an entire different instruction set ALA qemu. Running OS9 on x86 just isn't in the cards, Rosetta provided support for PowerPC on x86, and Apple apparently has looked at the download stats for Rosetta and figured it was time to let it go. Most apps have been PowerPC + Intel for a long time now.