Boot problems are always fun, I've got a laptop running Linux, 7, and OSX and that took a while to fix the boot mess, but I can say GRUB FTW.
My best guess as to what is going on is that your system is looking at the wrong drive when trying to boot Windows w/o DVD. When you use the DVD, your system for some reason looks at the correct hard-drive with the correct MBR to boot normally.
To fix it these are the steps I would take.
1. Nuke the XP drive, delete the volume and then reinitialize and format. Use 7's Disk Management program for this.
2. Unplug the XP drive.
3. If 7 will start normally, then enter msconfig.exe and remove XP as a boot option.
4. If 7 will not start, run the repair boot problem options from the DVD
5. Plug the formerly XP drive back in.
6. If you can't boot, go into BIOS and change the order of boot devices