Sylvander you must be telepathic as a few days ago I was also wondering about running Puppy Linux within XP in a virtual machine.
I opted for VirtualBox but did see VMWare also.
VB install was pretty straightforward. Installed Puppy Linux 4.2 into VB and it runs great.
Ran into a minor hiccup with the Host key function but that is probbaly because I did not really read VB's instructions.
Asus A8V Deluxe Rev2, Bios 1014.008, A64 4000+ San Diego @2.88Ghz (firstname.lastname@example.org), XP-90 w/ Enermax 92mm, BFG 6800GT OC 370x1000, Creative Audigy, Corsair XMS TwinX 2048-3200C2PT (2.5-3-3-6 1T@2.7v), Seagate 500GB & 250GB SATA (Promise IDE), OCZ PowerStream 520w, Lian Li PC7 Plus II (3x120mm fans)
"Two things are infinite: the universe and human stupidity; and I'm not sure about the universe."