Yeah, you can do that if you're careful. Partition Magic is overkill, even, because XP is still going to ask you about formatting the partition when you go to install, so you still have to be paying attention.
Make sure the partition that you're saving for XP is the first one, and when XP wants to install into it, make sure that it does not repartition the drive. You tell it "THIS is the partition I want you to use" and make darn sure it doesn't go "yeah, yeah, whatever...."
Formatting that partition, the one which you set aside for it, is okay. If it says it wants to rewrite the partition table, though, you will most likely be hosed.
"Formatting good, partitioning bad."