Are these separate HD's or partitions on the same HD?
Have you tried booting the Windows 7 DVD, choosing Custom Install, then use Drive Options to delete everything on C drive, create a new partition and format before install? Clean Install Windows 7
Do you still want to install XP if you can get Windows 7 installed?
In the future, ask here for help to repair your Windows 7 so you don't have to reinstall it, which should only be a last resort. We help fix Windows 7 here dozens of times a day.