Sounds like you want to say goodbye to XP. Sure you can move your data onto the other drive and then disconnect it. Good idea, as sometimes a second data drive can confuse the installer.
Boot from the Windows 7 DVD and select Custom install and then Advanced Drive tools to delete all, create partition(s) as your wish, and then format before install.
Afterwards, plug the other data drive back in and it should be seen via explorer. If not, assign it a letter in Disk Management.