You properly attach the second hard drive to the motherboard...I don't believe you can boot any form of Windows from an external drive (although some say it can be done). You make sure the jumpers are set correctly and that the drive is properly recognized in the BIOS.
You change the first boot option in the BIOS to the optical drive you intend to install from.
Save settings (F10) in the BIOS, system reboots.
I usually insert my XP CD between the reboot and the necessity to hit DELETE to enter the BIOS...as long as the CD is in the drive before the hard drive listing appears onscreen, I can get the "boot to CD" prompt onscreen.
To install either XP, Vista, or Windows 7...just follow the onscreen prompts to format/partition/install.
It might be wise to ensure that you already have at least the NIC drivers for the operating system you are installing, so that activation can be facilitated.
When the install is done...the next time that you boot you will see a screen reflecting boot options for the two different installs of operating systems, with the most recent one probably selected as the default to boot into.
I haven't used Vista (not likely to now, with Windows 7 on the horizon), but we have a Vista forum.