The key to understanding what is happening is to remember that in Windows Virtual PC, integrated mode uses Remote Desktop technology.
When developing Windows Virtual PC we worked hard to try and get the Remote Desktop technology to work well in the Virtual PC usage patterns – but there are some issues that we were not able to address. CD Autorun was one of them.
When you are using Remote Desktop to connect to a remote computer – you do not want a CD (inserted by someone else at the physical computer) to autorun in your remote desktop session – so this functionality is disabled. This has come across into Windows Virtual PC such that CD autorun only works if integrated mode is disabled. If integrated mode is enabled you will need to open “My Computer” and start the program on the CD manually instead.