Windows Virtual PC, the core of the technology, is more akin to VMWare, VirtualBox. The "Windows XP Mode" part of the equation was that Microsoft offered a pre-installed image of Windows XP.

While the virtual environment integrated somewhat with the base (eg audio, printers, some networking shares and hard drives), it still is a separate window running a separate virtualized OS. I'm not sure I would call that too tightly integrated.

Nonetheless I personally found it handy nonetheless to run the occasional very old 16-bit application.