I have and still do use Xammp 1.7.3, in fact I tried an update to 1.7.7 and it failed on me so I went back to 1.7.3.
Not sure why you are having issues as I have been using Joomla 1.5 through to 2.5 without any issues at all on xampp.
One thing I do however is manage my sites with the windows hosts file and the xampp file httpd-vhosts.conf
I have set my PC to be a static local IP, i.e. 10.0.0.4 or 192.168.something depending on your modem and what it uses, you should be able to set a local static IP to your PC via your modem admin.
Once that is done I then use that IP in my windows host file at Windows/system32.drivers.etc and enter something like
You can make as many entries as you want, just keep using the same IP and then access your local site using your local url (i.e. joomla25.moc).
Do a save as into a temp directory and then get that saved file and copy it to the etc directory and select to overwrite the older file, note you will need admin access to do that, also some anti-virus apps will stop you doing this so you may need to disable it for this.
I use moc in place of com so I know its local, you could use anything like 'local' if you want.
I then edit the httpd-vhosts.conf found at (drive letter will depend on your local set-up)
and make an entry like
# Joomla 2.5 Site
<Directory "E:/xampp/htdocs/joomla25" >
Options Indexes +FollowSymLinks Includes ExecCGI
Allow from all
ScriptAlias /cgi-bin/ "E:/xampp/htdocs/joomla25/cgi-bin/"
CustomLog logs/joomla25-access.log combined
and save it. (you can make as many entries as you like, just copy teh above and modify it for each local site you are working on
Restart apache via the xammp control panel and you should now be able to visit your site via the url you created, e.g. http://www.joomla25.moc
Not sure if the above will help but this is what I have been doing for quite a while and I have never had any installation or akeeba restore fail