No, dont wipe the Hard Disk Drive first, because you dont know if you are going to be able to fully get XP to work, or if you will be able to get the SATA drivers for your XP disc to slip stream it (nLite) with the correct SATA drivers. Also video, sound, WiFi, Ethernet drivers could be drivers that you may not be able to find at this time (try getting the driverpacks and I wish you good luck with that!)
Instead of FORMATTING, download gParted (Genome Partitioning Tool), its a freeware ISO image that you get to burn to a blank CD-R, then boot your computer.
Once you get to boot your computer, simply do the following to test out Windows XP WITHOUT Risking loosing your existing Windows 7 installatio in case if you have to go back for any reason (missing XP drivers?, etc??)
1) Resize the primary (main) partition (the largest one you will find, NOT the restore one (if any)) taking away, like 20 GB. You will have 20GB of unallocated space that you get to use to create a new partition there.
2) Right click on the 20GB unallocated space and choose to create a new NTFS partition. Make sure that you do not elect the default one which is "Ext2", that is for Linux, and you will not be installing Linux, but Windows XP and XP requires either FAT(Max 2GB, cant use that)/FAT32(MS says max is 32GB, but can go much higher than this, but dont use that anyways as its an OLDER standard and NTFS offers more features other FAT32) or NTFS. I recommend NTFS (if offers security parameters and functions otherwire not found under FAT32).
3) After creating and FORMATTING (TO NTFS) a new partition, right click on your newly created 20GB NTFS partition, a menu will come up, on the menu click on Manage Flags. Under Manage Flags select Boot and close that window. Immediately, your Newly created 20GB partition will be seen as the boot partition under your system bios, you are good to go at this stage.
4) Close gParted, doubleclick on the red (shutdown) icon on the top of the gParted desktop, then doubleclick on restart.
The Restart sequence for gParted will start, wait for it to eject the CD for you, once done that, insert your Windows XP CD onto your drive, then press enter to resume system restart.
At this point, your original Windows 7 installation wont be available because you have change the partition flags boot parameter from the primary partition to the secondary one that we just created here, to make that installation bootable again, just repeat my same procedure again, this time setting the primary partition as boot. Simple as that, in case if you have to return back.
5) Start the XP installation procedure as normal. When you get on the drive's menu, select the drive the corresponds to the 20GB partition that we created earlier (tipically it will be labeled as Drive C:, if you formatted it as NTFS when we were under gParted, select that, but dont touch the original larger partition)
6) After XP is installed, go and 'bless' your DriverPacks DVD, along with any other Drivers you may have found online that might work for you and go and try them. First try the drivers you downloaded off the web, including those suggested from your computer manufacturer's support forums, or any other online forums, if that fails for any given device, try to see if you can forcefully install them, and if that fails or causes a BSOD (Blue Screen of Death -- that will require a restart in safe mode to retry other drivers), THEN try the DriverPacks DVD (take a look under the Software Section at www.amdk7.com to learn where to get the driver packs from online).
Hopfully, if you were able to get your drivers installed successfully, then congratulations for you, at this point, you may want to consider moving your personal files from your Windows 7 partition to your 20GB Windows XP partition before you load up once again, the gParted CD to start up the computer with gParted with the objective of removing Windows 7 alltogether with its partition, then moving and resizing windows xp to match the mayority of the hard drive. Alternatively, if you WANT to keep Windows 7 on your hard drive for what ever reason you may have, you dont need to reformat, just use the larger Windows 7 partition to install your XP programs there, and you can move your user profile (c:\Documents and Settings) folder to that drive as well, but first create a new folder on the Windows 7 partition such as "Backup" and move all contents from the Windows 7 partition onto that folder so it wont conflict when you start using that partition to install your programs and for your user profiles. (there is/will be more documentations on the website www.amdk7.com that will cover how to move a user profile from one partition to another)
For me, keeping Windows XP under that 20GB partition is a great strategy in improving hard drive seek responsiveness and insuring that the 'system' partition never gets too fragmented, as Windows XP will be kept within a close reach sector wise (the larger the hard drive is, the faster data transfers will occur under that 20GB space), this is seen as an intelligent way of partitioning, you may also consider installing a few programs onto your XP partition since 20GB is too much for just to have XP there and that's it. Based on my experience and experiments, programs that you place on this partition will have the benefit of faster read access, so just put your everyday programs there, such as office 2007, Windows Live Messenger. While you attempt to keep your larger, and seldomly used programs onto the other larger partitions.
I hope my post helps you and others experiment with Downgrading either Windows 7 or Windows Vista in a 100% riskfree environment where you can always go back if things didn't broke to be the way you expected under XP, or other operating systems.