If the XP disk is plugged in and has a partition, Windows 7 should see it and assign the next available drive letter to it.
If you don't see a drive letter for the disk, go into Disk Manager:
▪ Start -> Right-click on "Computer" -> Manage
▪ Click on "Disk Management" in the left-hand pane
▪ Find the disk and partition in question in the lower portion of the right-hand pane
▪ Right-click on the partition and select "Change Drive Letter and Paths"
▪ Click the "Add..." button and choose the drive letter you want to use
I'm a little confused. Are you upgrading to Windows 7?
If so, you should do the following:
1) Save all your important data (spend at least two days so you can double-check you have it all like your e-mail backup, pictures, Internet favourites, documents etc)
2) Insert the Windows 7 disc
3) During SETUP, delete everything then create your first partition (for Windows) then assign the remaining space for the second partition
4) Continue with setup
5) Run Microsoft Update until it's done
6) Install the latest drivers (sometimes only Video drivers)
7) Copy back and restore your old files
8) Install Programs
9) (Optional) Make a backup image using software such as "Acronis True Image"
If you have an Operating System already installed (I wasn't sure what you meant), then you need a program to create a Partition. I don't know if there's a free one. Windows 7 has no partition software one installed (as mentioned it can do it during bootup as could Vista and Windows XP).
Don't spend any money on Partition Software. If there's no free software, you would be better off buying an inexpensive hard drive rather than paying for Partition Software.