1) Yes, this should work, and give your games the benefit's of SSD speeds at the same time.
2) Windows 7 is very easy to install, just to be safe, unplug the laptop HDD.
3) This may be due to driver support with XP, when you install Windows 7, you should be able to use the drive normally.
I hope this covers everything.
Have a great Christmas.
Thanks for all the info! I understand everything now except for the problem with the SSD not being recognized in XP. I started a new thread in Hard Drives for this though:http://www.tomshardware.com/forum/277706-32-recognized#t1893602