Internet Explorer 7 may be recent, but I wouldn't call it modern. The XHTML issue is only the tip of the iceberg. Once you start using "modern" standards (almost everything created after 1998; CSS 2, PNGs with alpha channels, transparency in general, JavaScript event handlers, etc etc) you'll run into all kinds of problems that require very specific IE kludges if they can be solved at all.

Anyway, I mainly serve up HTML 4.01 strict, but when I do go for XHTML I usually just send it as text/html, since it's often the easiest way to get it to work "everywhere". YMMV. Is there any specific reason you want to go for XHTML at all?