Listen carefully: If your SATA controller is built into the chipset, and set to IDE mode in BIOS, XP will install just as it would on an IDE drive. No extra steps needed.
Nearly all newer drives have a capacity that exceeds the limit of Windows XP prior to SP1. You can follow someone else's info on slipstreaming SP2 if your XP CD isn't SP1 or SP2. This has nothing to do with SATA.
It can't possibly cut performance in half for a few reasons, first that it doesn't drop the trasfer rate and second because even if it did your drive isn't really faster than the old ATA133 standard anyway.