Question about Windows 7 + XP...

[[TC]»Elmo«]

1. There's no point in trying to copy the entire windows installation from a corrupt drive - it'll probably fail to backup anyway.
Copy the files/settings you want to keep and do a clean install.
If the drive is corrupt (ie lots of bad sectors) you probably don't want to use it again, even after a full reformat. Sometimes you'll never have a problem again, but more likely than not it'll just get corrupt again.

2. Yes, you can transfer a W7 install to another drive, but you will temporarily need a third hard drive with enough space. However, it's quite complicated. I was thinking of doing the same and found this: http://www.pagestart.com/win7bckuprstrnhd072610.html however, I'll probably just to a clean reinstall.

Finally, yes you can do a clean install using the sticker key on your PC, however the install disc you use has to match the type of key. IE, not all XP Pro discs are the same.