I think embedded is more of a "turnkey" version of the O/S -- intended for folks who want to use it to make creating a complex system a bit easier, as it handles a host of I/O options, uses off-the-shelf parts, offers top-notch development tools, and is fairly configurable.
XP embedded has other features, including making certain devices read-only (preventing data loss or tampering) and fast booting.
It's a good choice for folks familiar with Windows development/configuration who don't mind expensive licensing and (perhaps) more complex hardware requirements than custom (but harder to develop) hardware can offer.
For example, the commercial Ultrapin pinball sim uses XP embedded to basically run Visual Pinball. This enabled them to leverage (some might say..."exploit" or "bamboozle") existing simulation software, draw on the expertise of an established and skilled community simulation-building community, and quickly build a device which would otherwise have cost many times more in research & development.
Using it to build a sim cab would be an interesting idea, but not amazingly ground-breaking. I doubt the effort (and piracy) would be worth it, unless you wanted faster boot speed and greater configurability, or whatever.