Applications written for the older Windows Mobile platform (now renamed Windows Phone Classic) installed directly on the device and ran on the underlying OS kernel, analogous to applications on Windows PCs.

By contrast, all Windows Phone 7 applications execute within one of two Microsoft runtime environments: XNA for games, and for all others.  

Furthermore, Windows Mobile applications will not run on Windows Phone devices, Microsoft officials . Though it has repeatedly emphasized that, depending on the application, developers may be able to re-use or readily adapt it for the new platform.

There are several implications to this. You won't be able to just load existing line-of-business Windows Mobile applications written in C/C++ or other languages on Windows Phone 7 devices. They will have to be redesigned and rewritten, though because of Microsoft's development strategy, a substantial amount of existing code in some applications can be reused directly or used with minor changes.

A related problem for some is the fact that Microsoft is not exposing the multitasking capabilities of the underlying Windows Embedded CE R3 kernel to developers.