also read somwhere that there is an "XP mode" in W7, but will that mean everything will work ?
XP mode in Windows7 Professional is a fully licensed version of XP (32 bit only) that runs in emulation mode under Windows7, basically by translating system calls etc. from Windows XP programs into actions in Win 7. The idea is to allow programs, drivers etc. that are designed to work under XP to run in a virtual machine that is in turn running under Windows 7 Pro, and it will allow a lot of things that will not run under Windows 7 to do so. There is some considerable overhead from that process, and it is probably not advisable to depend on that virtual machine in real-time audio processing.
A dual boot is a fully independent installation of XP and Windows 7 on the same machine and possibly on the same drive but on separate partitions. When one is running, the other is not and there is no interference between the two systems except for a problem with damage to the restore points saved by the two systems if they are not properly located/managed.
http://support.microsoft.com/kb/926185 You would need a license for both OS's, and could not use an upgrade version of Windows 7 as part of the dual boot configuration without violating the license. In addition without some care, the installation of Win 7 upgrade version will destroy an existing XP installation and void its activation.
A simpler but slightly more expensive solution for a desktop (and maybe a few laptops with removable drives) is to use a drive dock to swap two physical drives with a separate OS installed on each.