Windows – How to fix “Setup did not find any hard disk drives installed in your computer” error during Win XP Pro install

You could do that. You would want to set the drive as bootable using bootsect.exe. Of course, once once XP has installed itself your MBR will be overwritten and Win7 will no longer work, so assuming XP installed properly you'd just follow the MS Knowledgebase article on getting Win7 to boot again from within XP http://support.microsoft.com/kb/919529 if it doesn't go as planned you'll need to see about booting from a USB drive (which is probably the way to go anyway). And the way I would personally chose to do it (if not for the suggestion below) would be to create a bootable barebones partition as big as the XP partition you'd like boot completely into that and then just install XP from the install files.

A better way:

You can use WinSetupFromUSB and it should do everything for you. Of course, if you're install XP for fear of the Win7 RC running out, you have until March 1, 2010. If you just want to start from scratch with XP wiping everything, then this would also be the method I would use (random stray tiny partitions are not worth it).

As always I recommend backing up your essential data to a medium not connected during the install (whether it be using dropbox, a network share or an external hdd).

If you have Windows 7 installed you should look at Virtual PC. This will also have the effect of sandboxing your XP installation in case it gets a virus.

There are limitations, but they are detailed on the page.