Around release, Microsoft was referring to it as 3 OS's. One for games, a second for apps, and a third to handle them both. The game OS will keep one game running, even in standby mode. You can go back to it at any time as long as you haven't run another game. The app OS will run 4 or 5 apps simultaneously, and start shutting down old ones when you try to run more than that. This is why you can go back to apps and often see what you were doing last time you ran it.
Oh, and recently I had a game (Archeage, a Korean MMO) crashing and giving me BSOD. I wasn't getting it in anything else, only when the game was running. This is in Win7 64bit. This was ultimately the reason I quit playing it.
If I understood what I read correctly, the hypervisor is sort of a master OS that handles virtual machines, and the XOS and modded Win 8 each runs as a virtual machine. That they went to such lengths for a game machine is impressive. (Maybe I'm too easily impressed.) Then again, MS was thinking beyond games, too far perhaps, which got them in trouble with their Xbox fanbase.
It's so handy to be able to jump out of a game into any app, or use that snap feature (that took me a while to figure out, because it's not intuitive). Meanwhile, the game is still running, and I can jump back in at any time. Out of being a computer geek, though, I always quit out of all apps manually when I'm going to play the game in earnest. One thing that bugs me is Media Player. It is so limited. The worst is not being able to keep music playing while I'm running something else. I'm positive there's no good technical reason for it.
If a program (even a Korean MMO) BSODs your NT-kernel OS (e.g., Win 7), then some driver is buggy. It could be a driver you already had, like video or audio, which only happens to misbehave for that particular game (but could affect others in the future), or the game itself installed a buggy driver for something.
This is something that I dealt with while I was still a software engineer. Drivers run at Ring 0 (most open system level), where they can hurt things plenty. Apps (e.g., user programs, games) run at Ring 2 and up, where they have no power to hurt the OS or underlying system. If I wanted to manipulate the system at the nuts & bolts level, I had to write a driver, which is a lot more involved than coding an app.
Wikipedia has some info on protection rings. There happens to be some talk about hypervisors there too. Interesting. As I said, that's new to me. Also, it looks like drivers run at Ring 1, not 0 as I remembered/mis-learned. Haha! It makes sense. 0 is the kernel itself, the inner sanctum.