I assume they are both Bootable drives? You can only have 2 bootable drives installed, if you have software that controls which one boots the operating system. If all you want is a 'data' disc, then reformat the 'data' disc (not as a system disc), if you are going to use XP as your operating system, you would be better considering formating it as a NTFS rather than a Fat32 format. You can convert the disc with XP on it (assuming its also Fat32), using 'convert.exe' there are threads on here, whereby you can gain advice on how to do that.
You might also consider partitioning the 40gb disc into 2 - 20gb discs, much friendlier to defrag.