It can happen, but...I would not do it
I believe that any version of Windows functions better if the programs are installed on the same partition as the O/S...there's no reason that I can think of not to do that.
Putting the program files for two different O/Ses which are on a different hard disk...on the same hard drive as you have described...seems to me to be unnecessarily precarious in the event of hard drive failure. In fact, since you have two hard drives...I would put each O/S (with program files) on a separate drive, rather than put both on the same hard drive.
Unless you are using tiny hard drives...you are going to have a great deal of space on any drive used to install an O/S. If you don't use such for installing programs...what is that space going to be used for? If you say "data files", then why put data files on the same hard drive as the O/S...when that results in the slowest access of such data files? And you've made system functioning even slower by putting programs where Windows does not expect to find them.
Any hard drive which has no O/S on it...will be visible/useable by XP, Vista, Win 7...if it's NTFS file system. Use of the FAT file system has limitations. See Chart.
Just my approach...
Whichever approach you choose to take...please remember to provide for the two most important considerations (IMO): Backup/cloning the system partition and reinstalling/repairing the O/S. These items are often overlooked by users until it's too late for a rational approach.