This issue occurs because Windows XP Mode requires the underlying computer (in this case, the virtual machine) to have hardware-assisted virtualization enabled. This is not a supported option in a Fusion virtual machine, but Microsoft provides a patch to eliminate this requirement.
To successfully run Windows XP Mode, download the patch from Microsoft:
Note: The preceding links were correct as of September 27, 2010. If you find a link is broken, provide feedback and a VMware employee will update the link.