I had a similar setup to you a a while back. but with only a 40gb drive. I bought a new 120gb Seagate barracuda and installed it as the master, then replaced the old drive as a slave.
Me was dumped and XP installed. No problems at all. The new drive was set up and formated in seconds using the utility from the Seagate site.
If you plan to do something similar with the old drive, wait until you have XP on the new one. You can then install it, and partition and format it from within Windows. Very easy.