I have Windows 7 installed and running on my computer. I have created a partition with the built in disk management tool, and I was wondering if I could install XP on the newly created partition even though I installed Windows 7 first. Or would it be smarter to just buy another HD and install XP on that?
If your hardware will support it, this may be the better option for you, you didn't list your system specs or the version of Win7 you're running, so its up to you to research WinXP Mode for Win7, and see if you can go that route.
If virtual XP doesn't work, or if you want XP on another HDD, then download and install EasyBCD on your Win7 installation. Then add the HDD, install XP, and use EasyBCD to edit the Win7 bootloader, which will allow you to add XP as a boot OS, and to set your preferred the default OS boot.
I think there's a slight Catch-22 there. By installing XP you will make the Windows 7 installation unbootable - and hence EasyBCD won't be accessible. One further step is needed - after installing XP do a repair installation of Windows 7 to get it booting again; then you can do the EasyBCD stuff.