The current version functions pretty much the same, and CAN open '97 DBs in "97 format", but you can't make any design changes to them in that format using XP. It can LINK '97 Tables and IMPORT '97 Tables/Forms/Queries/Macros/Modules etc. It has a built in converter which works for about 98% of the coding.
When my company converted from '97 to XP the only real issue we ran into was in the VBA modules. Some of the Objects are defined differently, and the converter doesn't convert VBA (it just imports it). The fix we used was being less specific (IE: Dim ThisDB as Database became Dim ThisDB as Object).
XP now uses "digital certificates" to validate the addition and alteration of VBA modules. That's in the Modules Design view under TOOLS>>Digital Signature.
The Digital Certificate maker (You SIGN the VBA module with a Certificate) is in the Windows Start Menu>>All Programs>>Microsoft Office>>Microsoft Office Tools.
The rest of the changes were pretty transparent to most users, and some were pretty nice features (If you build a Relationship each record has a "+" sign which lets you pull up related records in the TABLE's datasheet view).
I'm sure other changes impacted differently on other users, but that's what I saw.