This is pretty simple to do and of course 100% free with absolutely no pirated software involved.
Go to this web page
Download Windows XP Mode and Windows virtual pc. You will need to validade the copy of windows 7 your using to download these files.
Then once both files are downloaded run the file called "Windows6.1-KB958559-x64-RefreshPkg" and reboot where prompted.
When the computer reboots back into windows run the file you downloaded called "WindowsXPMode_en-us"
Once installation has completed, go to your start menu and run the Windows Virtual PC. If you click the all programs button and look for it right down the bottom, select the "XP Mode" option.
Go through the prompts to set up windows xp. Once it is done you should be presented with something that looks like this:
Once you have this go to the tools menu at the top of the window and select settings from the drop down menu.
The settings pane is devided into 2. On the left is a list of devices and on the right displays the settings available for each of the selected devices.
Look for CdRom drive on the left.. here you have 2 choices basically.
1 you can set it to use a physical drive and just pop your cd/dvd into the cd rom drive you choose.
2 you can make an image of your disk and store it on your hard disk then select the image you created like I have done in this picture:
Then simply follow the instructions for installing TIS. I reccomend running it from the CD during setup rather than installing it on your hard drive, Especially if you are doing it the way I have as it will already be on your pc (not virtual pc) hard disk, so it will be at hard disk speeds anyway.
Anyway I hope this is of some use to you. I'm not sure if this guide will work for vista, but then if you have vista I suggest ditching it for windows 7!
I will be making a guide for windows xp 64bit and vista which will also work for 7 but it is a little more complicated than this guide. The good thing about it is my next guide can be used for Linux and MAC OSX too.