Thanks very much for the informative response. It sounds like the easiest method would be to simply allow Backup to create an image folder on the old drive.
I seem to be having no issues (yet) running apps on the old drive...although I'm not sure how that works. Is XP "running" on that drive even though the computer boots in Windows 7?? I didn't think that was possible...I planned on just reformatting the old drive but tried to open Photoshop for fun & it worked.
Somebody had this situation on another site and was told it really shouldn't work at all...[Solved] Move old hdd to new comp, stil use old programs? - Hard-Disks - Storage
But...2 different image apps on the old drive - Photoshop & MGI Photosuite - can open files from the new drive, modify them, and save them back to the new drive. So how in the world is this working for me??