If the computer boots Win 7 now...without the new drive then the boot.ini is on your spinpoint. New HDD and new OS all good..... I spoke of disconnecting the existing drive so you do not mess with your boot.ini or GRUB.
Oh ok, so:
1. Unplug spinpoint
2. Plug in 120gb hdd
3. Install linux to 120gb hdd along with grub to that drive
4. Plug back in spinpoint
5. To boot into linux or windows, change my boot device.
Seems ok to you?