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If you have worked on Windows XP for a while, I would understand you being more comfortable with it. The reason your friend suggested to format and install XP was that if you install Windows XP along with Windows 7 that is already installed, you might face problems starting Windows 7 as it will not recognize the boot files of Windows XP. So, he was not completely wrong.
But I'll tell you a way to achieve what you are looking for.

Here's what you will need to do:

1. Create a new partition on the hard drive using the 'Disk Manager' utility:
- Type 'diskmgmt.msc' in start>run to launch it.
- Right click and shrink the existing partition.
- Now create a new partition out of the 'unpartitioned space'.

2. Boot from the Windows XP disk and install it in the new partition.

3. Once XP is installed, insert the Windows 7 DVD in the drive, launch the command prompt by typing 'cmd' in start>run. Type the following commands and press enter after each one:
- Drive:\boot\Bootsect.exe /NT60 All
where 'Drive' is the DVD drive with the Windows 7 DVD
- Drive:\Windows\system32\Bcdedit /create {ntldr} /d "Windows XP"
where 'Drive' is the drive where Windows 7 is installed.
- Drive:\Windows\system32\Bcdedit /set {ntldr} device partition=x:
where 'Drive' is the drive where Windows 7 is installed and 'x' s the drive letter for the active partition(the XP partition).
- Drive:\Windows\system32\Bcdedit /set {ntldr} path \ntldr
where 'Drive' is the drive where Windows 7 is installed.
- Drive:\Windows\system32\Bcdedit /displayorder {ntldr} /addlast
where 'Drive' is the drive where Windows 7 is installed.

4. Restart

Here’s to Good Karma