what happens to drive letters when you dual-boot?

1. My machine has XP on a single hard drive w/ 3 partitions. In order to try W7 the easiest thing for me to do is to install it on my E: partition. If I boot into W7, do the drive letters change around or do the W7 system files still show up as E:\WINDOWS?

Are there any downsides to this installation that I don't know about? If I got tired of W7 would it be a problem to get rid of the bootloader?

2. My original plan was to buy a second hard drive, install it by itself, and load W7 onto it. Then reconnect the original hard drive and dual boot by changing the boot order in the BIOS. What does this do to the drive letters? I would have one hard drive with 3 partitions and another hard drive with one partition. If I boot W7 I'm guessing that its hard drive would become C: and the other hard drive would become D:, E: and F:. But what happens if I boot XP from the other hard drive? Does it stay C:, D: and E: and the second hard drive becomes F:, or do the letter scramble differently?

When you install Win 7, you will lose the ability to boot to XP. You will have to add the XP partition to Win 7's boot sequence in order to have a choice of either OS at bootup. Easybcd is commonly used for this.

If you install to what is currently E:, then boot to Win 7, Win 7 will be C:.

You will like 7. If you don't, you can then set the XP partition as active, boot straight into XP and then format the 7 partition. 7 gone.

Another hard drive is recommended way to go, but of course, not necessary.

You do not want to keep going into bios to change the boot OS. I mean you can, but no need no matter what the configuration or drives in use.

Incorrect! You should review the tutorial on how to set up an XP/7 dual boot. http://www.sevenforums.com/tutorials/8057-dual-boot-installation-windows-7-xp.html

When first setting up the 7 beta on a second primary with XP on the first XP's primary had to be mounted and assigned a drive like D often recommended for dual boots. The version you are booted into at the time will usually be C unless you start the installer for a custom installation while booted in the older version which would be Vista not XP.

In most cases a simple install of 7 after XP described in Method #1 will simply end up seeing the option for XP in the 7 boot options as "previous version of Windows" with the XP boot files on the root of the same drive when both are installed there.

If installing 7 to a second drive while the XP drive is unplugged you would have to copy the XP boot files over to the root of the 7 primary as well as edit the 7 boot loader being the BCD store to see the new entry added in.

With any second installation of Windows even with the same version drive letters will be offset seeing the D usually taken by the optical drive for a single hard drive system bumped to E. The other installation of Windows will be seen as D, F, G, H, or I depending on how many drives even usb drives and devices are present.

Actually you can see how that can look with the image of the several drives in use here.

Night Hawk is absolutely correct. Just leave both Hard Drives plugged in, and install win7 to a different partition than that of WinXP, and your dual boot will be setup automatically.