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you can essentially do the same thing with VMware, though not sure if this is available free. It is also possible to do something similar with windows 7 professional if you have a valid windows XP license. You will be able to create a virtual windows XP instance within windows 7 professional, mainly for support of legacy programs, but it should be able to function as a "disposable OS" for web browsing and such.
Sandboxie is not an OS/hypervisor level virtualization app, but a application/file system virtualization application. Virtualizing at the OS level requires more resources, disk space, etc as you will essentially be running a full second copy of your OS.
With Sandboxie, it runs the application in its own virtual container separate from the computers real file system/registry.
VMware has a similar product called ThinApp that allows you to virtualize just about any application into a single portable EXE file. For example, I have IE as a single 50 meg file that operates independantly from my OS.