Yes you will need to create a partition to keep your XP.. You can use the windows partition utility that you can access by right clicking my computer and click manage
Then go to Disk management and create a minimum 5 GB partition to keep windows XP
After you are done, download Win2Flash and Copy ALL the files on ur pen drive to a folder on ur PC, then open win2flash and create a bootstick.. its an easy process but takes a lot of time.. Make sure u select Fat16 instead of Fat32 in win2flash..Itll make the installation a LOT Faster..
Then after flashing is done, turn off ur pc.. plug in the pd and start ur pc.. go to bios change boot order such that ur pc boots from PD as first priority
Save and restart, now it should display the Windows XP Installation screen .. go on with the installation (make sure u choose the partition that u created initially)
Then next time u boot, you will most likely boot into XP.. Download Easy BCD and add a bootloader for windows 7 and you are done
Phew...
*www.google.co.in/url?sa=t&rct=j&q=...YSuvqs2KtnBxU34aw&sig2=WKRgnf1Ik3FazAUVv1UhnQ
For more info, visit the above link