|There is no such thing as a logical partition. There are primary partitions ans there are extended partitions. Extended partitions contain as many logical drives as there is room for them and letters to name them with.|
Converting a drive on a primary partition to a logical drive within an extended partition will almost certainly result in data loss. The only way to do it is to create the extended partition and then a logical drive and copy the data from one to the other.
If you want to isolate the cloned drive the simplest way to do it is to temporary disconnect it from the system or with a third party partition manager, mark it as hidden. It can be un-hidden later when Windows XP is properly installed.
It should be remembered that if there are any system files on the cloned drive, that is boot.ini, ntdetect.com and ntldr then while that drive is active, any new installation will use the same system files.
That is probably where you problems arise and temporary marking the drive as hidden will force Windows to create a new set of system files on the new installation.