When it comes to designing a system with both Windows 7 and Windows XP there are two ways to accomplish this task. The first method which you mentioned is to create a dual boot, or multiboot configuration between Microsoft Windows XP and Windows 7. The first step, as you also stated, is to ensure you have a separate location for each operating system you intend to use. In this scenario you will want to have one partition for Windows 7 and a second, separate, partition for Microsoft Windows XP Professional. Just as an added tool, Microsoft has a helpful video of how this process is performed
here. Another great resource is the multiboot step-by-step guide
Install more than one operating system (multiboot.)
However, with that said, perhaps the easiest way to run Microsoft Windows XP within Windows 7 is through
Windows XP Mode and Virtual PC just as another member of this thread pointed out. Windows XP Mode and Windows Virtual PC, available on Windows 7 Professional and Windows 7 Ultimate, allow you to run multiple Windows environments, such as Windows XP Mode, from your Windows 7 desktop. For those who do are not currently running Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate, there is an easy upgrade path to Windows 7 Professional or Windows 7 Ultimate through the
Windows Anytime Upgrade program.
Jessica
Windows Outreach Team – IT Pro