Linux doesn't need very much room at all, so if you wanted you could get any with a smaller disk, or even partition a portion of you back-up disk.
Just one word of warning, well two really, the first one is if you are running XP in NTFS it would be wise the create a small FAT32 partition so that you can swap files between XP and Linux because XP won't see Linux and Linux can only read the NTFS partition it can't write to it, whereas they can both read FAT32. The second warning is when are installing Linux, make sure you follow the on-screen installation instructions carefully because Linux has the hobbit of wanting to take over the whole drive if you are not looking at what you are doing.
What version of Linux are you looking at? I'm using Xandros.