Thanks for the reply WoodyZ; I think you've well outlined what I suspected. I was thinking it was acting like a "hybrid linked clone" as you described; and had already contemplated picking up separate copies of XP and 7 for this type of testing. That way I get full fidelity with the VM in Workstation, since the little bit I've been working with it, I've ran into multiple performance related issues. Truth be told, doing what I'm doing with XP Mode, I think is a bit beyond what it was intended for. So I think the onus is on me; and I should get separate licenses and install direct to Workstation.
Agreed on the license; but would need to read the EULA again to be sure.
Thanks!