Vista will only install itself on a primary partition. If you choose the C: drive where XP is already installed? Vista asks if it can rename your Windows folder "Windows.old." Uh, no thank you Vista. To get dual-booting to work, you have to create another primary partition where Vista can live alongside XP in peace and happiness.
Pop in the Vista DVD and run the install from there. Choose your newly created D: drive as the installation location. Vista will spend lots of time copying files and restarting your machine. All goes well in installation, and you'll set up your first administrative Vista user and go from there.
Note: Vista may not have the drivers for a whole bunch of the devices on your machine, like the sound card, video card, USB Wifi adaptor, dialup modem or Ethernet card, so be prepared to have all the driver disks that came with your computer (you did save your driver disks, didn't you?) to get your machine fully functioning with Vista.
Now, once you restart your computer, you'll get a choice to boot into XP or Vista.