First, I would suggest you keep the older drive, not as a boot partition, but rather use it for backups. There is nothing better than having backups available in case of drive failure, etc. If you decide to mirror it to the new drive, then simply reformat it after mirroring it, and use it for backups. You can set it as the E: drive. The mirrored boot partition will be C:, then partition the remaining space On the new drive as a new data partition, D:.
Now, if you are willing to do a fresh install, that will be useful and freshen up the system. Essentially the plan would be the same, new C: and D: partitions on the new drive, and the old drive reformatted as a new E: partition. What I would do is partition the new drive into two partitions. The first partition for XP and software installs, and the second partition for data. That will make backups easier with a smaller OS partition, and a larger data one. Usually, a 50 GB system partition is more than sufficient with the remainder of the drive partitioned and used for data.
Before doing anything else with the new drive, attach it to your system and run a chkdsk /r on it. The /r switch adds two additional surface tests to the normal three chkdsk tests. Make sure the drive is working properly before using it. Then do a long reformat before either mirroring to it or doing a fresh install.