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The system requirements for Virtual PC 2007 (a virtualization software similar to VMWare Workstation) says that the host computer must be running Windows XP Pro or the tablet edition.
You can however install Virtual PC 2007 on XP Home machine without problems though the installer will throw a warning saying "Host OS Not Supported" - ignore the error. It’s only the Microsoft will not provide support but the software will work just fine.
Insert the cd and use the use physical disc on the cd drop down menu, restart vpc and bobs your uncle, you can also use an iso if its an iso file you are using.
There are only 10 types of people that understand binary, those who do and those who don't.