When you have wiped the old hard drive, remove it from the Windows 7 computer and install it back into the old computer.
Boot into Windows XP for a clean install on the old computer.
During the install process you'll be able to partition the drive as you want. Windows will automatically allocate the drive letter C to the drive.
Do not try and install Windows XP to the old drive while it is still installed in the Windows 7 computer otherwise you'll mess up the Windows 7 boot files. Install Windows XP