Yes, you can do what you have in mind. But is it really worth it. For little money you can buy a modern Sata drive on which you can install your XP which is no problem (32 or 64bit). But rather than dual boot I would make an independent XP installation by disconnecting you current disk during the XP installation. You can then easily switch with the BIOS boot sequence.
Here is a video on how to physically install a HDD on a desktop. But there are a lot more videos on the web (this one happens to be a bit messy): http://www.youtube.com/watch?v=GIriCmOhtgw