Why not use XP as a base? It has considerably lower system requirements and a near-complete implementation of Win32. Things like DirectX 11 can probably be backported without too much trouble.
Because in addition to WT7, the user would also want Windows 7. That's the whole point of "best of both worlds". Providing an outdated OS for the other part doesn't make sense. What's the problem with Win7? It has proven to run very well
on low-end hardware.
What is the minimum requirement for WP7? What would be *cut out* of Windows 7? Nothing, since the whole point is to have a fully functional version of Windows 7 in addition to WT7.
I don't understand what the issue is. The idea is to run a full version of Windows 7. In that regard, it has all the same requirements as Windows 7. For the WT7 part, it has exactly the same requirements as WP7. Whatever is built into the
current SL+XNA for WP7 is all that would be required.