This answer by in this thread is working as of today: http://social.technet.microsoft.com/Forums/en-US/w7itprovirt/thread/aca326fd-8e37-49f3-8b90-4eda93a11cd6
Quoting the answer that matters:
1) I found out that .vmc and .vmcx files are NOT the same. If you found your .vmcx files, don't bother opening them up in a text editor for this issue. Instead, find the .vmc files (in Windows 7, they are found under C:\Users\\AppData\Local\Microsoft\Windows Virtual PC\Virtual Machines).
2) Shut down your virtual PC environment (I was using XP Mode). This was the step that I thought I could get around. I kept hibernating and making changes to the vmc file, but the changes did not work until after I completely shut down, made the changes to the .vmc file and booted back up.
3) As for what changes are necessary: If you are able to run the VBS script provided by SANDY.WADHWA [MSFT], good for you. If not, you can make the changes manually.
In the .vmc file, find the section:
<integration>
<microsoft>
<mouse>
<allow type="boolean">true</allow>
</mouse>
I made the changes manually by first adding the section:
<components>
<host_time_sync>
<enabled type="boolean">false</enabled>
</host_time_sync>
</components>
This was wrong for my XP Mode (it may work on a VPC 2007 environment, though, so give it a try).
Then, I removed the tags (NOTE: I did this as well, and this worked - you probably want to do this option):
<host_time_sync>
<enabled type="boolean">false</enabled>
</host
answered 2013-03-11T04:02:49.307