you need to remove all the partitions and make the drive raw then create new 1s... the partition of win xp is slightly different to 7 so if you try installing on to a win 7 created 1 the install will fail.
boot off the xp disk continue past the eula and then remove the partitions.
if its a large drive then create 2 new 1s max. reason being it reduces fragmentation if you use the drive as storage as well as primary boot. its not mandatory just a suggestion to help reduce the amount of time you spend defraging.
i suggest 1/4-1/3 for the primary and the rest as storage.
reason i say no more than 2 is because the drive will loose 10% of its speed per each additional partition. and you can allways housekeep storage with folders rather than full on partitions. like i say its just a suggestion but i find it really does work best.