Unless the hardware for the laptop is not enough I don't usually recommend going back to XP. MS will drop support for XP, and most hardware now runs with no problems on either Vista or 7. I like Windows 7 better than Vista because it is snappier, but Vista can be tweaked to run as fast, or faster than Windows 7. I have Windows XP, Vista and 7 on the same machine, and I almost never booted into XP. Both Vista and Windows 7 have a much better memory management that fits today large RAM quantities.
That said, if your friend still wants to install XP on a separate partition, then you will have to partition some of the free hard disk space. You can have up to 4 primary partitions and unlimited extended partitions. The XP partition does not need to be primary however. A partition needs to be primary for the boot, but it is already configured by the installation of Windows 7/Vista that came with the laptop.
However, dual boot are usually done by installing XP first and then Vista/7. I don't know if the XP boot menu will detect Windows 7 or Vista correctly for the boot. An alternate option is to use a boot loader.
And just asking again. If the laptop new? I have a laptop with Windows 7 and it boots really quick. XP cannot boot that quick since it needs to wait. And the sleep and hibernation are hundred times better in 7 than in XP
A laptop with Dual boot is not something that I would particulary do. I don't like to partition hard drives since the advantages of partitioning have long disapeared, instead I use separate hard drives which keep the performance. Having this in mind, if your friend is dead set on XP, then I would take an image of the current install and then do a clean install of XP, keeping the current install image (like a ghost image) as a backup.
Partitioning will reduce considerably your usable hard drive, and it might hurt the performance, unless the laptop was not heavily used, but at that case it would not make sense to invest so much time to downgrade to XP.
Have in mind that XP is 3 OS behind (don't forget XP MCE, because MS considers it as a milestone for support)