Upgrade & Clean Install

You can clone your hard drive with Acronis True Image or Migrate Easy and use the second drive as storage. You will need to change the partition type to non bootable with a partitioning program or you can erase it and start new, since your files are on the new drive anyway.
If these drives are PATA, change the jumpers appropriately (master/slave) when you clone and after you clone. Also change the position on the ribbon cable appropriately (end of cable or middle of cable).
Go into the bios to autodetect the drive when you first set it up.
There is another kind of drive SATA. Tell us which kind of drive, PATA or SATA, you are using. The setup is different.
A trial version of Acronis might work too. Otherwise we will explain how to do it without.

Boot from the Windows CD and you should be able to format the hard disk and install Windows.

So I remove my old drive, put in the new and boot from WinXP disk, and then go through install?

Forgive me if I'm being stupid, but how do I create and format a partition?

Yes, just go ahead and have the whole new disk be a single partition. Don't mess around with subdividing it into multiple partitions.

Some users like to create separate partiions for Windows, Program Files, data etc. I usually just make the hard drive one partition because you end up running out of space in one partition and have too much space in another.

Grumpy

As stated, no good reason for you to make a 20GB partition; just use the whole drive as one giant partition.

I also advise setting up WinXP using only one partition. If you are not sure what you are doing, do some research before you start. The Tweaking Companion provided on the Tweak Guides website is a great free source of info related to BIOS optimization and driver installation order. BIOS optimization before WinXP is installed will boost performance by eliminating unnecessary paging of MB features that you do not use.

Before I do a clean install I have all the updated drivers that I need on a CD or DVD. I also have the latest full version of Autopatcher plus any updates so that I do not have to go to Microsoft for hot fixes. Autopatcher also includes Windows addons and registery tweaks available for your choosing.

Just google "Tweak Guides" and Autopatcher and follow the links. The Tweaking Companion is a 186 page Windows XP guide in a free PDF format. Autopatcher's web page links to various download sites including some bittorrent downloads.