Advanced Format Drive on Win XP - NO AHCI

Yes it should work, you will need to download WD's version of acronis true image and use the new drive feature to align and partition the drive properly.

Yes, what you want to do can be done, with a few limits. First off, I do NOT run any Linux, so for that part I suggest you examine the info on the WD website. Try this for starters:

https://wdc.custhelp.com/app/answers/detail/a_id/5655

You should also be aware that most of these things apply to ALL Advanced Format HDD's not just to WD products.

Getting AHCI to work for you is not necessary to use an Advanced Format HDD, as far as I know. Your IHC7 chipset does not support it, and neither does Win XP directly. To get Win XP to use a AHCI device (even if you had it working via some other HDD controller) would require a brand new clean Install of Win XP including loading the AHCI driver from a floppy diskette. You could NOT simply clone your existing Win XP OS to a larger HDD and then switch it to AHCI without a lot of adjustment.

On the other hand, letting your machine continue to use whatever SATA HDD you install as an IDE device type will continue to work, so why not do that?

Popatim has pointed you to the free utility Acronis True Image WD Edition downloadable from the WD website. It does a LOT of tasks, including Partitioning, Formatting, and Cloning. I encourage you to read the manual file that comes with the software download! Although I'm not familiar with this particular feature, Popatim suggest it can do the job of "aligning" the new Advanced Format drive for use with Win XP. I do know the other alternative that was available earlier from WD was a utility for Win XP users that you downloaded and ran once AFTER making your clone copy to the new HDD. It basically moved everything around on the new HDD to do the alignment process for you. See this if you need more info:

http://www.wdc.com/global/products/features/?id=7&language=1

But, if the newer Acronis does the job for you, even better!

You are NOT stuck with a 160 GB Partition! In my experience, that Acronis software will, by default, offer to make the Destination Drive's new Partition the same size as the Source Drive, but you are not limited to that. You can NOT accept that suggestion and use the menu system to specify the size you want for the new Partition on the Destination unit. So you could easily use that feature to clone your old 160 GB Partition including Win XP to a new Partition of, say, 500 GB, thus giving you a larger space for data storage on your Windows C: drive. After that is done and running, you could use Acronis again to Create a second Partition in the remaining Unallocated Space of, say, 350 GB (or whatever is available) and then install your Linux into that.

I am quite sure that what Acronis means is, it works on ALL versions of Win XP, even up to SP3.

When you make a clone, which is ALL of the source drive's contents, the software must also CREATE the Partition on the Destination Drive. In doing so it places in the Partition Table data on the size of the Partition, its characteristics (Primary Partition, bootable), etc, Formats that Partition, and places files vital to the boot process in the right places. Most cloning software cannot place a clone in an existing Partition. So your plan - to Partition first under Win 7 then clone to that Partition under Win XP - will not work. When you start the cloning process, the best step in that case would be to DELETE the existing Partition and start with an empty drive!

I am quite sure that what Acronis means is, it works on ALL versions of Win XP, even up to SP3.

When you make a clone, which is ALL of the source drive's contents, the software must also CREATE the Partition on the Destination Drive. In doing so it places in the Partition Table data on the size of the Partition, its characteristics (Primary Partition, bootable), etc, Formats that Partition, and places files vital to the boot process in the right places. Most cloning software cannot place a clone in an existing Partition. So your plan - to Partition first under Win 7 then clone to that Partition under Win XP - will not work. When you start the cloning process, the best step in that case would be to DELETE the existing Partition and start with an empty drive!

I just discussed this with my son, a Comp Sci major who uses various Windows and Linux versions. He says what you want to do is complex, and really requires extensive advice from someone who has direct experience with exactly your situation:
(a) have Win XP SP2 32-bit on an older 160 GB HDD;
(b) Want to upgrade to a WD Velociraptor 1 TB SATA;
(c) Have an older mobo using Intel ICH7 controller which does not support AHCI;
(d) Want to create and use two Partitions on the new Velociraptor: one bootable clone of the existing Win XP SP2 32-bit, plus one bootable Partition with Linux installed - need to specify what Linux distro;
(e) Could use Acronis True Image WD Edition for cloning, but not necessarily - am flexible.

My son suggests that this is not a question of 2 or 3 staightforward steps. It is more like you need a specific list of 25 (plus or minus, that's an arbitrary number) things to do in the correct sequence.
He suggest you Google for answers and info on your needs, and hope to find someone with exact experience. I realize that's what you had hoped to find here, but I'm not it, and I'm not sure any of the other posters have such precisely-defined experience, either.

I agree. Separate bootable drives for different OS's makes a lot of sense. That eliminates any problems of two OS's trying to use a common Partition Table. The BIOS can help you choose a boot drive at each boot occasion, and it is not necessary for each OS to have access to the contents of the "other" drive. In fact, it MAY be wise not to set up such cross-system access.