Hey jordancurd, i would personally recomend getting yourself a 1TB Samsung F3
Secondly to get you data from 2 hard drives to one you will need to make a backup of all your personal data that you want to keep. Windows XP has no backup tool pre installed so a thrid party one could be used or even you could just do it your self. litrally just cut and paste all the items your want to save such as "My documents" and "My Pictures" to the external hard drive. You wont be able to back up your programs as when you reinstall windows the registry will be deleted and the program will most prob no longer work.
Once the items you want to save are on the external hard drive install your new hard drive into a spare sata II port and test it using xp to make sure that it works. You will need to format the drive first by right-click on My Computer and go to “Manage”. In the window that comes up, click Disk Management in the left pane. Once it loads, you should see an “Initialize Disk” wizard pop up. Partition and format the disk to your liking (ntfs is best). (good link is Installing A Hard Drive – Step by Step | PCMech
your new drive will be ready for the installation of windows 7. Enter your windows 7 DVD and Boot from it (to do this see this link Boot Order - How to Change the Boot Order in BIOS - BIOS Boot Order
go through the steps from the DVD and install to the freshly created new drive via the custom install option. once this has completed and installed it will ask your what operating system to boot to, select the new windows 7 and boot into that. after setting it up by following the on screen instructions copy all the data from the external hard drive back to the new OS.
Finally once your confident that the operating system is working fine with your hardware you can format both of the old drives and use them as extra storage or backup drives. you could even leave the XP installed and have the option of the two operating systems on start-up (old and new, xp and windows 7).