Is it possible to format master windows on Dual Boot?
Solution 1:
If you install Windows XP on an empty hard disc, it will create a combined boot+system volume. (This is a poor idea, and something that even the x86 PC world has finally moved away from in the years since Windows XP was released. Windows 7 when installed on an empty system will create separate boot and system volumes.)
If you install Windows 7 on top of that, it will update that combined volume in place, to replace the Windows XP ntldr
with Microsoft's Boot Manager. The Windows XP boot+system volume doubles up as the Windows 7 system volume, with the Windows 7 boot volume a separate second volume (on that second hard disc). If you then format that Windows XP boot+system volume at a later date for some reason, you will indeed render your system unbootable, because it doubles as the Windows 7 system volume.
What you want is a separate system volume, so that both Windows XP and Windows 7 have separate boot and system volumes. They share the system volume — as they should since it is a system volume — and they each have their own boot volumes, that you can format and reformat at leisure, without each affecting the other.
Microsoft provides a lengthy procedure for doing exactly this.
Of course, you shouldn't need to touch the system volume. You'll always need your system volume. It is, as the name says, an essential part of the system. So don't go putting it on that removable hard disc that sometimes isn't going to be there at bootstrap time. But it will only contain, in a Windows XP/7 dual-boot setup, Microsoft's Boot Manager, the Windows Recovery Environment, and the Windows XP boot loader. You shouldn't need to touch it in normal operation, even for a complete reinstall of one of the operating systems.
Solution 2:
Technically, a bootloader loads first before Windows. You just modify the bootloader to show entries for both Windows 7 and WIndows XP. The order to do this is first install XP, then install WIndows 7. Setup automatically detects you have XP loaded and creates an entry for XP on the bootloader automatically.
If it is on an external drive, you'll just have to tell bios to boot from the external drive instead of the internal HD. But why do that? If you use Windows 7 ultimate, then you have access to XP mode!! It allows you to run XP applications just like a regular Windows application, but it is actually running XP underneath.
For example, my my scanner software doesn't have 32 bit drivers, so I run it under XP mode. Looks just like another application, but it is running XP underneath.
edit in response to comment
Since you are installing WIndows 7 on a seperate partition, nothing XP does affects Windows 7 (well, there is [one hiccup]).2 And vice versa.
Solution 3:
Windows 7 installation on an empty disk usually creates 2 partitions:
1 - System reserved ( about 100MB ) contains Windows 7 boot environment
2 - Windows 7 itself
In your case you can place the boot environment of Windows 7 (contents of System reserved) on the XP disk. If you install XP first on your internal disk then install Windows 7 on the external then Windows 7 boot environment will be placed on the internal disk and you will have a dual-boot created by Windows 7 installation process. In BIOS the order of disks should be internal (XP) first, external (Win 7) second.
If you disconnect the external disk you still can boot to XP over Windows 7 boot environment but if you try to boot to Windows 7 you will get an error.
You can make the boot choice for XP to be the default and rename the entry as Windows 7 installation creates the entry for XP as "Earlier version of Windows" for example with this tool Visual BCD Editor. Alternatively you can use Windows 7 "bcdedit.exe" command line utility.