It is recommended to have each OS installed on different drives (partitions).
You also need to perfrom dual installs of each application package.
When 2 OS's are installed on the same drive, many programs won't install properly, or will corrupt the installation for the other OS.
I would opt for 3 partitions.
W2K, XP, data files.
That will make it easy to share data between the 2 versions, and prevent cross corruption of program files.
Since you have W2K running, I would either add a second drive, and install XP there, or use Partition Magic to add a second partition to the drive for XP.
When you install XP, it will replace the command.com, ntldr, and boot.ini files on the "C" drive.
There is a wealth of information on the Boot.ini commands posted on Microsofts site.
Just search on boot.ini and boot.cfg
Chas