1) BACKUP YOUR DATA
2) Make there is enough free space on the disk.
3) Chkdsk and defrag
4) Use Partition Magic or Gparted live cd to resize the partition so that there is free space on the disk
5) Use the same tool to create a new partition in the free space and format it
6) Boot from XP install cd and install onto the disk you created
7) Boot from Windows 7 cd and repair the installation
You should now have a Windows 7 boot menu that allows you to select between XP and Win7
Warning - Following these steps could easily (read

robably will) screw up your system so probably shouldn't be attempted by anyone
Actually.. thinking about it maybe a better way would be to...
1) Backup your data
2) Create and format 2 partitions
3) Install XP to partition 1
4) Install Win7 to partition 2
5) Restore your data