A forum posts suggests the re-installation of the Integration Components (to uninstall in XP Mode, go to the Control Panel, Add/Remove Programs and uninstall the Integration Components, reboot, then you should see the option to install them from the VPC Menu.).
From a Microsoft support forum:
I had a clean install of Windows 7 Enterprise RTM, with Windows Virtual PC / XP Mode RC installed. When trying to start XP Mode, I would get “Integration features have been disabled”, and after clicking OK "Parameter is incorrect".
I also had this error message in the eventlog:
Could not enable the Integration features for ‘Windows XP Mode’. The current mode is – 0. Last Channel start Value – 0×800700B7, Last Disconnect Reason – 0×300001B, Last Extended Disconnect Reason – 0×0, GHI State of the guest machine – 0×1
Now, a simple solution is to fire up regedit and then set HKEY_CURRENT_USER\Software\Policies\Microsoft\Windows NT\Terminal Services\UseProxy to 0 - as soon as that value is changed, XP Mode will work.
However, RD Gateway settings will no longer be applied automatically - which is a a workaround for now, but it's not perfect.
The registry keys being set by the GPO are as follows:
[HKEY_CURRENT_USER\Software\Policies\Microsoft\Windows NT\Terminal Services]
The blog post EV100165
(Windows XP Mode RC fails with “Parameter is incorrect”) has some troubleshooting information about one of the instances of event id 1001.