<p>I'm planning to write a aspx pages on Windows XP machine. I have IIS 7.0 enabled and virtual directory setup. Are aspx page developments allowed on Win XP?</p>

Yes, you can develop ASP.NET pages (.aspx) on Windows XP. XP only runs IIS 5.1, however you don't even need IIS installed as Visual Web Developer Express has a built-in web server you can use during development.. To get started, I would go to
http://www.microsoft.com/express/
and download Microsoft Visual Web Developer Express. After doing that, go to
http://www.asp.net/get-started/
to learn the basics. Post any questions or problems you encounter back here on StackOverflow.