Microsoft are claiming that much of the compatibility problems caused by Vista have been resolved with Windows 7. What chance is there that some or all of my Windows XP compatible software (rendered useless with Vista) will work with Windows 7?
Depends on the specific software.
In most cases of drivers, you can use Vista compatible things.
Most XP software will work even if you have to install it in an XP compatibility mode at the worst. You can do that with any edition.
For Windows 7 Professional and up, there’s an "XP Mode" add-on you can also download and install to guarantee XP software will work. It’s mainly useful for businesses that might have older custom-made XP applications. The add-on runs a full virtual XP environment, just as if XP was actually installed.
If you have a lot of XP applications — especially anything custom-made — and you want to be sure they’ll work, get Professional or Ultimate so you can use the XP Mode add-on in a worst case scenario.