You just have change the X video mode to 16-bit color because the VPC emulated graphics card doesn't like true color (can be done from GUI or by editing xorg.conf) and add "-- i8042.noloop" to end of the kernel boot parameter in menu.lst to get
the mouse pointer to work.
Those steps above should take all of thirty seconds.
Still... why VirtualPC?
Unlike VirtualPC, there are several of other virtualization products that all have been optimized for a varity of Linux guests.