First, Download and install Microsoft Virtual PC 2007 SP1. You can download Microsoft Virtual PC 2007 SP1 software from the following link:
http://www.microsoft.com/windows/downloads/virtualpc/default.mspx

Since Virtual PC only supports 32-bit guest operating systems. You need to Download Windows 7 beta 32 bits version.

Click on New to launch the New Virtual Machine Wizard.

Select Create a New Virtual Machine and click Next.

Name your Virtual Machine, set the location and click Next.

Officially, Microsoft Virtual PC 2007 SP1 does not support Windows 7. In upcoming Virtual PC Version this OS will be included. Since Windows 7 is similar to windows vista. You need to select windows vista in the Operating System list and click Next.

By default 512MB ram and 65,536 MB Virtual Disk will be set. Adjust the RAM if required and click Next.

Select A new virtual hard disk and click Next.

Click Finish and complete the New Virtual Machine Wizard.

Your Virtual PC Console should now have your New Virtual Machine entry. Highlight this entry and click Start.

Click on CD –> Capture ISO Image and select the Windows 7 beta 32 Bits ISO image. This will mount the ISO image as a DVD drive.

Press Enter and if everything is right your Virtual Machine should launch the Windows 7 beta Setup. Click Next and follow the self-explanatory on-screen instructions.

When asked which type of installation do you want? Make sure to choose Custom (advanced) and again follow the self-explanatory on-Screen instructions.

Once the installation is complete, you need to install Virtual Machine Additions. To install virtual machine additions click on Action -> Install or Update Virtual Machine Additions.

Running Windows 7 in Virtual PC would not be fast as non-virtual environment, but this would be best way to try beta release without screwing up the non-virtual environment.