VMWare is probably the best choice as it now has video acceleration which is probably necessary to play any sort of game.
XPMode is OK if you want to run an old business app that doesn't work in 7 but I wouldn't have thought it was up for gaming.
If you want to use a virtual XP system my recommendation would be to use:VMware
- difficult to use the free version (by comparison to the others) or expensive to buy the Workstation edition but with best hardware support. You can download VMWare Server for free and set up a VM and then use VMWare Player for simpler use by your father-in-law.Virtualbox
- free and easy to set upParallels
- not free and mainly aimed at the Mac market - the Windows version is a couple of versions behind.MS VirtualPC
- the advantage of being free but just isn't nearly as good with hardware and slower than the other offerings. Advantage is a free copy of XP for Win 7 Pro or Ultimate.
in that order.
The reason you need to go through the WGA nonsense with the download is not to stop you downloading the product it is because you are issued with a free unique license to Windows XP so just copying someone else's disk is not ideal as you will be using their license too and at some point both copies might get stopped by WGA when you update them.
It's important to note too that whichever VM you go for they will need to be updated for security patches etc. as they will be intenet connected. If bandwidth is an issue this isn't trivial as there are vast numbers of updates to download - even since SP3 was released and it takes a long time even on a fast stable connection. Also you can't install it on your PC, do the updates and then transfer it to your parents computer as the activation will be broken. The VM 'sees' the underlying hardware and it will recognise it isn't the system it was installed on. (Just had this problem when I move my old XP box into a VM and transferred it to my new Win 7 box).
FWIW I am running Win 7 on a Phenom x6 processor with 16Gb RAM and I still don't think any VM would be tolerable to get games running even if it has sufficient VM hardware support.
It might be simpler to find him another game to get hooked on ...
One last thought - have they tried installing the game and running it in XP compatibility mode? A lot of games will run with a bit of effort - just make sure you force them to install and run in XP compat mode and that you run with admin privileges. Worth a try. You can do that by right clicking on the executable file or a shortcut to is and choose the Compatibility tab. Select run this program in compatibility mode for Win XP SP3 and also select Run the program as an administrator.
Probably best to do a full backup of their computer before you try it (Windows Backup System Image is very good for this) just in case it screws something up.