After installing IIS I believe you need to download Web Platform for IIS and then download and install PHP.
In any case, Xara's internal preview still won't work as you hope, it's designed for standard HTML and not server side scripts. There's no configuration options for this.

I use PHP scripts occassionally and quite honestly it's fast enough to publish to a temporary folder at the host server where the site will eventually live to test it, which after all is best policy to ensure it is compatible with the host's configuration.