I'm not sure that Windows 7 has the same basic (fdisk, format) etc. commands or that they work the same way in its recovery mode. However, you could install Windows 7 (which I suggest) and it'll erase your XP partition and create two new ones: one a "system reserved" which has all of the boot and etc. info on it as far as I can tell, and the other the actual Windows partition.
If you go that route, once you've installed everything, boot back into the recovery mode and set the OS X partition as the active partition so that the system will boot to that. After you've done that, install Chameleon 2 to get yourself a nice, graphical bootloader that'll let you choose which OS you want to use.