Arkose: Note that Virtual PC is not fully compatible with many titles because it runs in 16-bit color only; games that require switching to 256 colors will not work. I would recommend VirtualBox for such cases. Virtual PC has the advantage of a seamless window for each program, however, so for those games that do work it's a really great way to play them in a near-native manner.
Only if using Virtual PC for Windows 7 since that uses RDP for rendering. Supposedly if not using the integration components then you can change color depth (I can't verify since I hate the POS that VPC has become).
Also you can use Virtual PC 2007 (and it's recommended to do so if using 9x as a guest) just fine on Windows 7.
In fact VPC is currently the best VM for running 9x guests, second place would be Vmware. VirtualBox would be dead last as far as running 9x guests.
Weclock: have you tried compatibility mode?
Petrell: Won't help as Vista/Windows 7 can't handle 16-bit installers (MS dropped support on 16-bit apps in Vista).
Vista/7 32bit can run 16bit apps\installers just fine. There are some issues with NTVDM in Vista/7 being less compatible with some 16bit DOS/Windows games but those are very rare.
ALL 64bit OS's released by Microsoft do not support 16bit (well there is a slight excemption to that case with some common 16bit installers but even that may be gone with Windows 7 now...haven't checked), so this isn't a recent thing.