The bad thing about Virtual-PC, much like Bochs, is that it emulates an x86 CPU. Even the x86 version emulates an x86 CPU!
Emulating the xbox is not impossible and wont require massive hardware, sure there will be SOME overhead but IMHO a 1.5GHz+ & GF4 would be able to do it. The 2 main problems will be HyperTransport and the REAL TIME DolbyDigital encoding...