After installing 11.10 Desktop to Virtual PC 7 I have no mouse in the session, and cannot use the keyboard beyond logging in.
In my experience, Ubuntu has never worked well in Virtual PC. It sounds like it's working better than it used to - I never used to get beyond the bootloader.
To be honest, you can't really expect Microsoft to optimize their product to run Linux when it's designed for desktop virtualization of Windows. You might suspect that they even deliberately break things to make other operating systems look bad - but such suspicions would probably be churlish.
I recommend you try one of the other free virtualization products. The first to come to mind would be Oracle VirtualBox, which is easy to use and runs every distribution of Linux I've thrown at it, in addition to Windows.
VMWare Player and it's large selection of appliance images and readily available documentation on how to create virtual images without the paid tools would also be a popular choice for hosting Ubuntu on Windows.