Apparently, a complaint that involved Phoenix Technologies and their HyperSpace and Hyper Core products that aim to virtualize at the BIOS level, caused Microsoft to allow running Microsoft Vista as a guest OS.
The issue was only in the End User License Agreement, not with OS itself.
"In January 2008, Microsoft needed only to modify the EULA to implement the changes; there had never been a technical barrier to virtualizing either version of Windows.
"The complaint concerned a restriction in Microsoft's Vista EULA, which purported, for less expensive versions of Vista (Home Basic and Home Premium), to bar the user from running those versions of Windows on virtualization software"
"Phoenix, which had recently announced a virtualization product, complained that Microsoft's EULA restrictions would deter OEMs from including its product on new PCs and also deter consumers from using virtualization software made by Phoenix and other companies"
Vista virtualization rules relaxed to quash antitrust probes
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System Program: a program, as an operating system, compiler, or utility program, that controls some aspect of the operation of a computer (opposed to application program).
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