I often need to test against Internet Explorer 7 while developing, and while there are several hacks to run IE7 alongside IE8, I've settled on using a virtual machine instance of Windows XP (such as the temporary ones provided by Microsoft).

Today, I tried running the release candidates of Virtual PC and XP Mode for Windows 7 to more seamlessly accomplish the same thing. Here's a screencast of it in action.

After running the Virtual PC then XP Mode installers, you can either run a windowed XP virtual machine (just as e.g. Virtual PC 2007 allows), or you can add application shortcuts to the all users programs folder of the start menu inside the virtual machine and they'll appear in the host's start menu. Then, these applications run similar to a regular application (ala VMware Fusion for the Mac).

In the screencast, I show launching IE7, but this can be used for other applications as well.