It is a simple problem, but new learning if you have not used Vista or 7 in a dual boot.
If you want a dual boot, without hassle, it is best to install XP first.
So, at your stage, as you are dealing with fresh installs. Prepare your partitions, which you seem to have done. I would suggest you label them (7 and XP?) so you know what and where you are dealing with.
Install XP. Dont waste too much time, at this stage, configuring it.
Boot up with you 7 DVD and install it on the other partition. It will automatically set up a dual boot for you.
You can, where you have arrived, now install XP again. This will ruin your dual boot, but it can be fixed with help, but it is bothersome.
Your problem occurred because Vista/7 has a new boot manager and MBR, which is totally incompatible with XP.