A few things to note when building your XP image for MED-V.
1) You MUST use Windows Virtual PC to build the Image! My laptop has 2008 R2 installed on it so I can use Hyper-V. Since VPC doesn't allow for 64-bit guest OS's this is the best option for me for development purposes. I have tried VMWare Player in the past but the performance isn't up to par. The Windows XP SP3 VM for MED-V requres the VPC Integration Features installed before it is packaged ... the Hyper-V Integration Components are very different and don't cross over very well.
2) Follow the MED-V Help file for building the Windows XP SP3 VM The Help file included with MED-V 2.0 will tell you all the patches and registry mods you need to apply so the VM works properly. Don't try to be the hero!