ssmaxss: hey man, i've been meaning to look into configuring disk overlay mode but it's a bit more complicated because that's typically set up by First Boot Agent in XPe. It needs to create a hidden partition on your drive and all that stuff. I recommend you look into the EWF API DLL. There's a "ConfigureEWF" function or something similar that I think does all the setup. It'll probably take a lot of tinkering in Virtual PC.
The best way to go about this is use the XPe tools to create an image with disk overlay, then load it into Virtual PC to see what the FBA registry values are so you can copy them over to your XP Pro system, then run ConfigureEwf. Looks pretty simple once you get the registry values.