|But C: is on the first hard drive and D: and E: are on the second drive?|
Since your OS is on C: you'd need to clone that to an empty partition on the second drive. I don't think it could be E: as the OS needs to boot from the first partition, unless maybe you set up some kind of boot manager. But even then, what would you do with the stuff that's now on that partition?
If you go that route (and depending on the size of D: and E:) you're probably better off copying everything from D: to E: and then cloning C: to D: But sometimes when you do things like that XP gets confused because drive letters have changed and you can end up losing stuff.
It probably could be done but I think in the long run a new drive would be easier. You should be able to get a cheap 20-40 gig drive on ebay and clone C: to the new drive. Then take out the 8 gig, hook up the new drive in its place and you're all set.