Now if only there was a link to compare why one would want 64bit over 32bit, hmmmm
Briefly, 64-bit allows you to use much more RAM, which is good for new games that are RAM-hungry.
32-bit is better for old computers with motherboards that can't take more than 4GB of RAM anyway. 32-bit may also allow you to run very old games that use 16-bit code, either in the installer or the game itself. Of course games that old are probably better off run inside an emulator.
What lanlynk said... the XP mode is basically business based and does not support 3-D graphics.
In other words, XP mode is very much like Virtual PC with a pre-activated XP VM, only made to look like it's part of Win7. Graphics are limited by the emulated video card -- an old S3 Trio. Here are the specs of the computer emulated in XP Mode (which are the same as for VPC2004 and VPC2007):http://support.microsoft.com/kb/833144
Now this would be fine for very old games or other games that don't use 3D acceleration (like QuickTime-based games), except that games that are that old would be better off played in a Windows 98 VM rather than a Windows XP VM. So you're better off using Virtual PC with Windows 98 instead of XP Mode.
By the way, Microsoft says you can't use Virtual PC in Windows 8. Instead they offer Hyper-V, which does not support any version of Windows older than XP. However some people have managed to install and use Virtual PC on Windows 8. It requires changing the vmm.sys driver that comes with Virtual PC. You also need to rename the Virtual PC executable so Windows 8 won't block it from running. It's something Microsoft could easily do to create a Windows 8-compatible version of Virtual PC -- except they don't care about people who want to run very old games.***How to Install VPC2007 on Win7/8******Virtual PC in Windows 8***