It says that you need VPC 2007 when you try to enable networking with the Arm emulator.  But Win 7 has a later VPC.
But when installed (Win 7 version) the required networking isn’t installed.

This article seems to resolve the issue:

http://www.brianpeek.com/blog/archive/2009/05/02/windows-virtual-pc-and-the-microsoft-device-emulator.aspx

Thanks Brian