QEMU
QEMU is the best supported emulation system for emulating the OLPC-XO's Sugar environment. Many developers will use QEMU to help set up their development environment, whether for testing or development work.
You will almost certainly want to get the KQemu accelerator if you intend to use QEMU, as without it performance can be quite poor. On Windows and Mac, there are GUI wrappers available. Most Linux users tend to use the command-line approach to the program.
QEMU is an Open Source processor emulator which can run the official OLPC ext3 images directly. This means that no extra conversion or processing is required to run the images. As a result, a much wider range to images is available immediately than is seen with other emulation packages (such as VMWare or VirtualBox).
Setting up QEMU
Basic setup of QEMU is generally fairly easy. Most Linux distributions have a package which can be automatically installed. Windows and Mac users can download a package which includes all of the required components (or assemble the components themselves).
More information can be found here.
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See also