It's possible it will install and write the System boot files to the Active partition, since a Logical partition cannot be marked Active. It will also take over the boot requiring repair of Windows 7 to add XP using EasyBCD - more trouble than it's worth.
I would instead use free Partition Wizard
to create a fourth Primary partition after shrinking the Windows 7 partition in Disk Mgmt. If you use PW to Resize 7, then use the boot CD which like Disk Mgmt will not fail.