I’m working on a legacy Java app that runs from Tomcat on localhost in Windows 7.  When the time came to test for compatibility on IE8, I used XP Mode from Microsoft.

You can snag it here: http://windows.microsoft.com/en-us/windows7/install-and-use-windows-xp-mode-in-windows-7
Be sure to scroll to the bottom of that page and install both XP Mode and Virtual PC from the download links provided.

To connect to localhost running on Windows 7 from the XP Mode machine, networking in the VM should be set to Shared Networking(NAT). After it’s set, simply access the host by IP address and port and you’re off!