If installing onto another drive, just select "leave current file system intact" and do not select format.
You WILL NOT loose any files. (Maybe t31os wasn't understanding the question?)
As long as there's enough space on there, you'll have a windows install on your storage drive... Without any data loss.
If you select "Format with NTFS" etc, then you'll loose data...
But not just from installing XP on to it.
You can even install onto the same drive as a windows install, same partition, but rename the windows folder when it prompts to "windows1" or similar.
it will install windows into the new folder, leaving the old folder untouched.
(I've had an OS on "C:\Windays" before - Ran for months)
Best idea is to just fit a new drive, but if you want do test it before RMA'ing it, then installing onto your storage drive will not delete any of the data there unless you specifically set it to format.