To clarify:
ide disk(0) is 1:dell partition 2:XP
ide disk(1) is 1:Win 7
When the machine boots on its own, it goes into the BCD screen, not the boot.ini screen. There *are* BCD files in a directory \boot on the XP filesystem, which I presume were installed there by the Win 7 installer, and IIUC, to which the MBR currently points.
I also presume that I want the VM to have an MBR that points to boot.ini.