The easiest way to dual boot XP/Windows 7 is to use separate hard disks, and use the bios boot menu to switch between them.
The advantage with this systems is that you leave your XP install entirely alone, so you can easily just remove an entire hard drive and still boot into the other OS.
To do this, put in a new hard drive, and disable/unplug the XP one. Install Windows 7 on the new hard disk, then re-connect the old one. You can then use the boot order option in the bios to specify if your PC boots XP or Windows 7.
On my PC pressing F8 on boot brings up a boot menu, so I can select the other hard disk to boot into the other OS.
You can map the drives so that all your files are accessible to each OS.