Citrix recently acquired a company called RingCube. RingCube makes something called vDesk. vDesk essentially "spawns" what appears to be a fully isolated Type 2-like virtual machine that runs on top of an existing copy of Windows. But unlike VMware Workstation or Microsoft Virtual PC, RingCube vDesk leverages the existing files (EXEs, DLLs, etc.) of the base copy of Windows to spawn the "VM." So instead of needing a multi-gigabyte VHD or VMDK to boot the VM, the entire vDesk package can be as small as 30mb.
This technology introduces the concept of user installed applications to XenDesktop since each user gets a personalized vDesk "VM" while maintaining an IT-controlled base desktop image.