Install windows xp clean (format hard drive on install) to a partition of a certain size (boot from the XP CD and follow on screen prompts) and once the install is complete you can use the Disk Management tools to partition the remaining drive space into a partition for DOS, a partition for storage etc. Each partition will have it's own drive letter (hence why your mate has two letters on his computer).
Well that's one way, I'm sure others can think of better ways though
