Microsoft has decided that all of their new products will only install on vista or Windows 7. They do this even if there is absolutely NO REASON for this restriction. Examples are their folder syncing tool, IE 10 and other tools and applications. The newest tool I have found not offered for XP is the phone7 SDK and development IDE (based on Visual Studios 10) Visual studios 10 works just fine on XP and is supported, but not the SDK for the phone? Why, Microsoft? WHY? Don't you want people making apps for your new offering? Don't you want some market share?
But there is a kicker... the SDK and IDE are completely compatible with XP. There is no reason to exclude XP other then to force upgrade to windows 7. Here is how to install it. It's as easy as changing two values in a text file 
http://www.redfrogfish.com/483/how-to-install-windows-phone-7-developer-tools-on-windows-xp/