Was it a Windows 7 Professional, Ultimate, or Enterprise version? XP mode is only available in those three. I am not familiar with XP Mode myself since I have Home Premium. I could upgrade to Professional for a low price through my student license, but I do not feel inclined to do so given the age of Windows 7 at this point. It probably won't be well supported for much longer with 8 on the horizon unless users make the same complaints as they did with XP support being revoked. From what I've heard, that won't happen.
Back to your question: If a user running 64-bit uses XP mode, is it an XP 32-bit or XP 64-bit emulation? If it is 64-bit, that would still leave 16-bit programs unsupported. To me, the better method would be to use something like DOSBox for the 16-bit software emulation it provides. That would alleviate the need for a 32-bit OS installed on a 64-bit processor. Thoughts?