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Is Windows fully functional when installed using Boot Camp?
Yes, with the exception of some keyboard mapping differences, Windows on an Intel-based Mac is fully functional.
Page 16-17 of the original "Boot Camp Installation & Setup (Manual)" explains how to switch between operating systems during startup:
1. Restart your computer.
2. Immediately press and hold the Option key until the disk icons appear on your screen.
3. Select the icon of the startup disk you want to use, and then click the arrow beneath the icon.
Apple also explains that:
You can use the Startup Disk pane of System Preferences in Mac OS X to set the default operating system for starting up your computer. Boot Camp also installs a Boot Camp control panel that lets you set the default operating system when you’re running Windows.
No. Users who need this capability would be better served with a "virtualization" solution like Parallels Desktop for Mac, VMWare Fusion, or VirtualBox. With these programs you can "copy and paste" between MacOS X and Windows, just like you can using Virtual PC on PowerPC-based systems.
For more on these programs, please refer to the Windows on Mac Parallels Installation, Parallels Usage, and VMWare Fusion Q&As.
On page 9 of the original "Boot Camp Installation & Setup (Manual)" Apple reports that Windows can be installed on an internal drive, either a "second partition for Windows on any internal disk" or "a single partition for Windows" on its own drive. The official Apple company FAQ likewise states that "you cannot install Microsoft Windows on an external hard drive."