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Use free Partition Wizard bootable CD burned to CD using WIndows Image Burner or Imgburn, boot, rightclick C to Resize to the size you want to make Win7, Click OK, then Apply. Partition Wizard Move/Resize Partition Video Help.
I'd suggest 40-50gb depending upon how many programs you want to test run it with and whether you want to keep your files on 7 or access them from the XP partition.
Boot the Win7 installer to Clean Install Windows 7 to the partition you made, which will configure a Dual Boot menu to choose the OS you want.
Have your wireless or ethernet driver for Win7 or Vista on a stick or CD so you can get online quickly to install all Important and Optional Windows Updates after enabling Automatically get recommended drivers and updates for your hardware.
Any drivers which are then missing in Device Manager should be imported from the Support Downloads webpage for the PC or device model. YOu can also google the device make/model and Win7 driver, or report back what's missing and we'll help you find it.
If you decide you want to keep Win7 and remove XP we'll help you move the boot files to Win7 and even recover the disk space after deleting XP as shown in Partition Recover Space Used by an Older OS