A 10gb partition should be ok for XP but why Virtual PC? If you only want to run XP with your existing OS then it would be easier to install it to the second partition. Virtual PC is really meant for multiple OS testing etc. Have tried it but personally prefer VMWare as its more versatile for Linux etc which I sometimes try out.
Personally I would get a second larger hard drive and fit as slave, pretty reasonably priced these days.
To answer your last question yes you can get the 10gb back but would need third party software such as Partition Magic or Acronis Disk director.