The reason is that by default when you close Windows XP Mode, Windows Virtual PC will put Windows XP Mode in hibernation. If you dont know what XP mode is, its great tool for Windows 7 users that want to use old hardware or software. In my case I was using it to watch TV over old USB tuner card.
Anyway, fix for this is very simple
go to: Location “C:\Users\[user id]\AppData\Local\Microsoft\Windows Virtual PC\Virtual Machines”
changing the name of the .vsv file, and that will force it to start booting the VM fresh when you start the VM again.
To prevent this error from happening again in the future, you can change the virtual pc option from Hibernation to Shutdown.
1. Open Virtual PC.
2. Click on Tools and then click on Settings.
3. Under the Close tab, change the option from Hibernate to shutdown.
4. Restart your computer and start your Virtual PC for the changes to take effect.