This in my opinion would be your best bet.
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Take anything on your secondary hard drive, and transfer it to your currently dying primary hard drive. ( just lump it under 1 folder on the desktop )
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(for trouble free installation and so hard drives don’t get mixed up by you or the motherboard just take the first hard drive out, change the pins on your secondary hard drive to make it the primary and put it in the old dying hard drives spot.
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Boot with the xp disk in. Now when you get to a screen dealing with partitions. If you want a 100% clean install. Delete ALL partitions on the hard drive (this being your working one). Then make a new partition on that hard drive.
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Now install xp to this new partition.
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After the install boot with out the cd in and make sure you can log on using your newer hard drive.
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If it works fine NOW take your old dying hard drive and set its pin to be the slave hard drive and hook it up in the secondary hard drive slot and cable position.
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Now boot up your pc again and it should boot to your primary (newer) hard drives xp copy. If it does now go under my computer. You will see 2 hard drive icons. (probably C: and D: but it varies by brand of computer and motherboard). In any case the 2nd hard drive icon is your dying hard drive. Click it and you will see "Documents and Settings, Drivers, Program Files, Ect… ".
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Go under documents and Settings and click the user name you always log under on (if its a single user it should just say your name or administration).
Once you click on the selected login you usually use you will get some more icons. Desktop, My Documents, Shared, Windows, Ect…
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Now you can click the Desktop icon and find your folder that you took from the secondary hard drive (currently your main) and copy that, and paste it to your current desktop. ( the reason i had you put it from the working to the non working hard drive is because if you wanted a fresh install you have to delete the working hard drives old partition and this would delete all the files)
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One you copied your secondary (now main) hard drives info back to your primary (use to be secondary) hard drive, you can copy any other stuff you need from your dying hard drive to your main. Like under the same “Documents and Settings"what ever user login” you can select “My Documents” and take all that stuff and paste it on to your current desktop. (be sure to rename it My Documents 2 or something so nothing is over written).
And your DONE!
If you have any questions pm me or post