I was going to purchase a SATA dvd drive but I keep hearing stories about not being able to install Windows XP off the DVD because the drive won't be recongized. Some people are saying I will need at least one IDE optical drive to install windowns?
I believe the answer to your question is; As long as you have XP SP1 RTM version you can use a SATA optical drive to instal windows, the issue stems from the orgional RTM version of XP didnt support SATA, that issue was resolved with SP1.
In any case it doesnt matter, all you have to do if the setup isnt recognizing the SATA optical drive is use your IDE optical drive to do the instal then after the instal is complete, update to SP2 then switch over to your new SATA optical drive.
Another option if you have the origional RTM version is to slipstream XP2 into your old version and put it on a DVD, you can find out how to do this via an article that was posted some time ago on Toms Hardware called Slipstreaming Windows, this is a time consuming but in many cases worthwhile route to take, that can aleviate your setup woes. Or you could quite simply buy Vista and go around the problem entirely.
You can load windows from and too any ATA drive that uses a controller addressable by Windows generic IDE controller drivers. That includes SATA drives, so long as the controller is set to non-RAID mode (and possibly with AHCI turned off) in BIOS.
Anything else will require third-party drivers to be loaded from floppy at the F6 prompt.