|"My goal is to install Windows 7 on a new HDD I have purchased....can I simply plug the 160GB HDD back in by itself and boot up Windows XP with no issues."|
Probably, but it'd be best to go into the BIOS and write down the settings for the current (160GB) drive, if you can do so. If your new one is a different model, size, manufacturer, it may have some issues (re-)recognizing the old drive. Also, you should back up any important data in case something goes horribly wrong. Also (actually, first), make sure your machine has enough "horsepower" to handle Win7 adequately (given your specs, it probably should):
"Channeling the spirit of jboy..."