I am running a Windows XP virtual machine on a Windows XP host machine. I use the VM for suspicious websites and software/applications. In the case a kaylogger will be installed on my VM: will this keylogger listen to the keyboard activities when I type on the host machine ?
It should not be able to, as keyboard press events (interrupts) will only be routed to the VM when the VM has focus. Any other time, the keyboard press interrupts will be handled within the host OS, and thus would not be visible to the VM.
Of course, if you map your host keyboard as a raw device in the VM or otherwise redirect the interrupts, that would change things, but I assume you're asking about the common case.
I don't think a keylogger has ability to do so. But monitoring the keyboard activity of a VM station from the host machine is possible (only with my own experience).