We are domain joining close to 100% of our Windows XP Mode installs on Windows 7.
We do that because we can better manage the XP Mode’s security settings and user experience via Group Policy.
Note that the first time the domain user account logs into the XP Mode VM and they have a large redirected folder set, that the first couple of logons may take some time while the redirected content gets cached in the VM:
Now, if there is no need for the user to gain access to their redirected folders in the XP Mode VM then a simple Group Policy setting change to disable Offline Files for the VMs will do the trick.
We place all XP Mode VMs into their own OU, so any custom settings will go into a Group Policy Object that we create and link to that OU.
Microsoft Small Business Specialists
Co-Author: SBS 2008 Blueprint Book