I have an older computer (desktop) currently on windows me, with a very small hard drive, too small for windows xp (i think). I wanted to buy a new hard drive and replace the old one with the new one and then install windows xp on it to use as a second computer. Before i start i was wondering if this could be done, and if so how hard is it to do this? will the computer take a different hard drive? how difficult is windows xp to insall?

For your system, you might have to compare your system's specifications against what XP requires to operate, then, add 25% onto your system's specs for it to run comfortably.
Here are some howto's for you to peruse and aid you in your project.
http://www.pcnineoneone.com/howto.html