It seems ot be a question of W7 Home Premium or Professional, can't see any point in Ultimate.
I connect the two PCs to permit file & printer sharing and file synchronisation, I use IIS on the XP Pro PC for web site testing. I'm not interested in gaming, in streaming data explicitly, in watching TV on-line. Unsure about XP mode, whether it'll be relevant or not. Again not sure of the benefits of being able to back up to a home network.
Then there are the N variants of each of the versions. Again. not sure of the pros and cons of that feature, just says it makes it easy to create a home network.