|Not sure I can answer your question. I can maybe give you some tips.|
What I might do is boot to the xp cd and use the repair. See MS site for how to's. There are two ways an XP cd can repair a system. One way is using command line sort of tools to fix mbr and some other features like fixboot. The second way is to boot into a repair gui that basically restores some files to the way they were in the original install. That tends to make you reload applications. All the data would be there but since the registry is replaced the programs won't work. I would be inclined to try the command line repairs first. If you can then boot to xp then you can fix the W7.
The bios boot order has a bit to do with the way the system works. It played part in how your install and boot loader works.
W7 changed the way it boots a bit. That is why you see the choice would be my guess and it let's you boot to W7. W7 uses bcdedit. My guess is you had some files on the W7 disk that were needed for xp. When you installed W7 two or three hidden files were overwritten and the bulk of your xp is fine.
Playing to the angels
Les Paul (1915-2009)