I have XP machines that worked perfectly with xampp, and then I got Windows 7 and my vhosts aren't working anymore. The vhost file is exactly the same, windows host file exactly the same. I did test a basic vhost that didn't have an .htaccess file in it, that worked fine. Here's the error:
[Mon Dec 07 18:48:12 2009] [alert] [client 127.0.0.1] C:/xampp/htdocs/xampp/codeigniter/trunk/html/public/.htaccess: RewriteEngine not allowed here