Daemon Tools (Free / Paid)
Daemon tools is one of the oldest and widely used software in this category. There are 2 versions of this product available, as both free and paid-ware. Supports Windows XP / Vista / 7 (x64/x86).

Since the time they have started to sell a paid copy of the product, the free version has started to pack some bloatware like browser tool bars and certain add-ons. However you would be presented with options under custom installation to install the software without these add-ons. Where as the paid versions allows you to create 32 virtual drives supporting Blue-Ray also.
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Microsoft is aiming to bring virtualization under mainstream computing via couple of its up coming products.
Windows Virtual PC along with Windows XP mode and MED-V (Microsoft Enterprise Desktop Virtualization) are among those products by which Microsoft is aiming to provide both home and business users the ability to utilize the power of virtualization.
The main force behind this move is a basic question which comes up every time when we get a new operating system. That is, application compatibility. Users find it difficult to afford the cost to upgrade / update theirĀ existing applications to make them compatible with the new OS hence adoption of a new OS becomes problematic.
Previously, we have seen that since Windows 2000, Microsoft is running their Windows Downgrade Rights programs to allow users to obtain and downgrade to a previous version of OS. However, with up-coming Windows 7 we can all rest assure about the application compatibility issue.
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