When you install an application that does not support Terminal Services on a virtual machine that is running in Windows Virtual PC, you receive the following error message:
Could not initialize graphics system. Make sure that your video card and driver are compatible with DirectDraw.For example, this problem occurs when you install Microsoft Age of Empire II on a virtual machine that is running in Windows Virtual PC.
To work around this issue, switch from Windows XP Mode to Basic Mode to run the application. To do this, open the Windows XP Mode toolbar, and then click Disable Integration Features on the Tools menu.