If you've read my blog for any amount of time, you probably know that I tend to develop stuff in a Parallels VM on a Mac. It's how I roll. I like VM's because I can trash them and do really stupid things with beta software. That said, there is a pain point that doesn't seem that well documented when it comes to installing stuff in this scenario.
The WP7 tools, and SP1 for Visual Studio 2010 (perhaps only if you already have the WP7 tools installed, I'm not sure), do something strange on install. As if it weren't already a long and slow installation, for reasons I don't understand, the installer fires up an instance of Windows Phone Emulator. As you may already know, the emulator doesn't run in a VM, because it is itself a VM, apparently. What it will do is fire up your CPU, make your comprooder hot and make the fans blow harder.
I found this out accidentally, as I started the (slow) phone tool installation once, and walked away. An hour and a half later, I came back to find it hadn't finished. But it was hot and the CPU was pegged, so I fired up the task manager to find XDE.exe, the phone emulator, cranking away. I had to kill it several times, and eventually the install finished. It fired up just once in the SP1 install, but it still had the same hanging effect.
I can't for the life of me figure out why it does this. In a VM, I can connect the phone to it and use that, so I don't need the emulator. But this install, firing up the emulator, will make it choke until you kill the XDE.exe process. Watch out!