"I did ask the Tech Chapess at PCW about installing the thing and she mentioned that when I install it and then install Win XP SP2, it will uninstall the copy of XP that is on the existing HDD. Is that right?"
Nope. I can't quite understand what exactly was being explained but it's wrong anyway, she may have been referring to the size limits on hard drives pre-service packs.
If I were in your position I'd install the new HD as a secondary drive and leave the 14gb where it is (unless it's speed is less than that of the new one) and move all my files, folders, etc over to the new drive so your left with just windows and programs on the old drive and all your data on the new.
If your new drive is faster than the old one then naturally I'd make it the master drive and use the 14gb one as a place for storing backup data.
Well that's what I'd do, others may have a different way, wait for their posts which will invariably give you a better idea of what you want to do.