Can I make a virtual machine out of a Windows XP physical machine?

You can use the Vmware P2V - http://www.vmware.com/products/converter/overview.html , then the free VM player

http://www.vmware.com/download/player/

Some other VM software also supports the VMWare images.

Virtual Box is free, and the latest version has full support for accelerated 3D graphics.

There is a forum post about creating a VDI image from an existing Win XP system here: http://forums.virtualbox.org/viewtopic.php?t=1404

What you want to do is better known as a "Physical to Virtual" migration, or P2V in short.

I have done this once manually and I know it didn't go very smoothly. Don't remember the exact steps I took, but it was something like this:

• Take a clone of your windows xp system harddrive (I used a Bart PE bootable cd with ghost on it).
• Install a virtual server of your choice and create a virtual machine in it.
• Restore the clone of your harddrive into the new machine (also booting it with Bart PE to do that).