The thing is, afaik, Virtual PC will happily let the CPU execute all the user-space instructions, and thus they all work as well as if they were running on real hardware - since they _do_ run on real hardware.
But it is probably the case that Virtual PC will then do some "security checking" of any system code, possibly by JIT'ing it or just interpreting it, since it can't let the kernel run natively with privileges. That's what VMware does too, since older CPU's don't have virtualization support for ring0 programs.
And _that_ is presumably buggy, and never learnt about the "new" instructions in the PPro.