Simple, clean, functional, no dual booting, no hassle.
By the way, application incompatibilities between XP and Windows 7 are 100% the fault of the people that wrote the application, not Microsoft. They took shortcuts that they were not supposed to (and warned about) years ago.
Not sure with all the responces if this was braught up but you could also just install microsofts virtual pc and it comes with xp mode which would allow you to run your computer as if it was actually running xp.
Edit: Lol just looked at the post above me... Best option by far in my opionion as well.
I have Windows 7 Home Premium on this computer. If I right-click on a program shortcut, there is a "Troubleshoot Compatibility" option in the list. If selected, it tries to detect any issues, and then comes up with a screen with some options, one of which is "troubleshoot program", which allows you to select compatibility options. If I click on this, the first option on the next page is, "The program worked in earlier versions of Windows but won't install or run now."
I'm assuming that continuing would allow you to run compatibility mode for XP or other versions. It sure seems to be going in that direction. Is this incorrect? It looks to me like Windows 7 Home Premium has compatibility mode.