Do you need a valid copy of Windows XP to install XP mode for Windows 7?

There is no need to have a copy of Windows XP, as Windows XP Mode (which is a feature part of Windows 7 Professional and Ultimate) comes with a fully licensed version of Windows XP with Service Pack 3.

A step-by-step instructions on how to download and install Windows XP Mode for Windows 7 can be found at related links section of this question.