Is it possible to install Windows 7 on a computer with XP without disturbing XP?

Not even close to possible with all those restrictions. As well as the issues MarkM mentions, dual-booting with Windows 7 will change the way your system boots so that XP is relegated to an 'older versions of Windows' set of options in the boot menu (whether you partition the disk or get a second one). The only way to do it without Windows 7 affecting your XP installation in any way is with virtualization.

"FAT32 and NTFS are not compatible file systems. Upgrading the file system from FAT 32 to NTFS in the XP system will not change how the system works and will actually give you better performance. If you did upgrade to NTFS, then you will be able to create a dual boot system that should run just fine as long as the hardware works with Windows 7's min requirements and you have enough harddrive space.

Good luck and hope this helps."