There is a few pins at the back of the harddrive, next to where the ide cable goes. You have to set it to the required one (master or slave, I can't remember the others.) There would be a cap supplied with the harddrive, probally already in the master position.
For xp, put xp disk in, click next until you get to the point where you need to partition it. After that, it will give you the options to format it in ntfs/fat32 (if it is a small one), format it in ntfs slow.
edit, for the above reply, you want the hard drive as slave, in windows it would be called something like E:
You can also format in windows, if the harddrive isn't active, and doesn't have windows on it.