A workaround to the installation constraint has been explored in several posts on the msdn wp7 answer forum. There was no definitive confirmation of how to circumvent this or the reasons confirming why the restriction exists (although the xna requirement was noted in the associated thread).
One such post you can check is here .
I would like to be able to get around this myself, even if the possibilities were limited, so I can do some testing on several computers, some of which still run xp.
Edit: There is an update on this thread that is worth a try.
Mick n
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