Hello demgonlord, welcome to Windows 7 Forums,
You will not be able to install XP from within Windows 7 as it stated in the error Window "Setup cannot continue because the version on your computer is newer than what your trying to install."
You'll either have to make another partition on your drive to install XP (which is not a good idea) or install another hard drive and install XP on it (this is the preferred method), either way, you will have to do a custom/clean install of XP.
hope this helps
Don