Can I install windows xp on the laptop that runs on Vista?

You'll need a full copy of XP.

You'll want to make sure Dell has XP drivers available for your laptop.

You change the boot order in the BIOS, to boot off the XP disc. You'll press any key when prompted. You'll want to delete any existing partitions and do a full format. That will wipe out the drive and start the install process.

or u could just go with windows 7 and not have to worry about drivers and have a more stable system

I wouldn't go as far as saying it would be a more stable system. Windows 7 is nice, but there are still some issues. XP has been around for a while, and is a more polished product.