The cursor in Ubuntu 7.04 does not work in Virtual PC. Ubuntu 6.10 does not have that problem. It has the 24-bit color issue, but that can easily be worked around. The mouse problem in 7.04 cannot be worked around.
As for why Virtual PC, it is free, it supports hardware virtualization and it is readily avaliable. I would really like to use a Virtual Machine that has all of that with SMP support as well.
According to Wikipedia, Virtual PC 2007 doesn't support SMP and uses regular virtualization. Xen and VMWare support SMP, paravirtualization and/or hardware virtualization (CPU kind). I also read that VMWare supports multi-monitors and experimental Direct3D 8 hardware
I personally use Virtualbox and it supports Linux distros just fine with full 24 bit color and a seamless mouse (with guest additons). Virtualbox has a neat RDP server feature, where you can remotely access your virtual machine via terminal services client.
The mouse issue is at least solvable in Ubuntu 7.10 and other distributions using "-- i8042.noloop".