2 Hard Drives? No RAID?

You can copy your data but the paths in the registry for applications will be broken Some may run, some won't. No need to Raid the drives.

XP will not handle being installed after 7.0 well. If XP was installed first then 7.0 it would be handled automatically and give you a multi boot menu, but XP won't know how to handle the 7.0 boot loader. You'll need some type of boot manager installed. Chances are your games won't work, and finding all the registry entries can be a pretty daunting task.

Pretty much Install XP first, then install 7.0. You will have to install apps under both OS's, but only need one copy of the app when finished. Install under XP, then boot to 7.0 and install there, pointing the installation to the same path as the XP install. That way the install points ar the same and the app gets to add it's registry entries to both OS's

Do a quick format with XP it will be just about as fast. I would say no, your best bet is just to format the disk while you are installing. XP should be installed first - the windows boot loader will be installed on the Boot sector of the first partition of the first physical drive for all OS's - no matter what disk the OS is installed on. The newer version of windows should always be installed second, since it will know how to manage the boot loader of the old, but the old won't know how the new boot loader works, and the boot loader of Vista/7.0 is completely different from the XP boot loader, as is their partition table. That's why you don't want to format with 7.0 for XP to load.

When you install Win7 it will rewrite the boot loader so you will be able to pick the OS you want to run from the boot menu

You should just be able to do a repair install to the current win7 installation - hopefully win7 supports that, haven't played with the RCs yet.... so no need to format teh disk, but yes it will need reinstalled in some form so t can rewrite the the boot loader to know that both versions of windows are installed. Otherwise it doesn't know where to look for the OS files...

You will have to tell it which drive to use, but you need to have both drives plugged in, the boot loader only exists on the first physical drive, it points to the other drives. So for the boot menu to be updated you will need both drives connected, and you will have to tell Win7 what drive to install on during the setup.

Shouldn't have to so long as BIOS recognizes both drives.