Hi,
You are on the right track mostly. What will happen when you go to install Ubuntu is that it will see all the partitions on your hdd. Since you already have one that is for windows xp, you won't have to do anything with that.
You made a second partition, did you actually partition it off and format it an ext3, ext4 or did you just leave it as open space? If you partitioned it off and left it as open space that is best so that you can format it to whatever you want. However, if you partitioned it and formatted it to a format that isn't supported you will just have to reformat that partition and install from there.
To answer your question about your MBR Ubuntu installs the boot loader called GRUB2. This is a program that runs your MBR. It will write over your windows MBR saving the hdd and partition points that you have so that you can boot from it, it might even show it as Windows XP.
Hope this helps you a little bit.
Cheers!