Installing Windows on the same hard drive is no problem...installing Windows on the same partition
is a problem that can be rectified.
XP FAQ, Two XP Installs On Same Partition - http://www.michaelstevenstech.com/xpfaq.html#20
You must be sure that you boot the system into the install which you want to keep...then you can delete the Windows folder for the second install.
Then, to correct the boot.ini file (which will still reflect two installs), you can follow the procedures outlined in Removing the invalid entries from Boot.ini - http://windowsxp.mvps.org/bootopt.htm