Channel 9 posts a nice video about the Windows Phone emulator in the (free) Windows Phone developer tools.
While Silverlight and XNA Framework enable developers to create new and innovative applications and games for the Windows Phone (WP), these are just sets of libraries. In order to complete the development experience, a set of powerful tools is required. Microsoft Visual Studio 2010 Express for Windows Phone is a free express version of Visual Studio tailored to the Windows Phone. It includes Visual Studio Express to write great software, but more importantly for our purposes, it also includes the Windows Phone Emulator, which allows you to test and debug your application without even having a WP device. This enables you to create your software with high predictability and ease.
Join Amit Chopra, Raghuram Lanka, and Mukund Bhoovaraghavan from the Windows Phone and Tools team, and Yochay Kiriaty, Senior Technical Evangelist, for a tour of the internals of the Windows Phone Emulator.