Vista has a 4 part restore program for its back up...it will allow you to back up any single partition (it sees it as a drive) Just do a full back up of drive c and burn the back up to disc. Do the same for drive E..
Now follow the instructions for removing xp from the link: http://www.syschat.com/remove-xp-xp-...boot-1927.html
use the installation CD to wipe out the boot info for xp and then format the D drive and use it for extra storage.
If you wish to recapture the D drive into C then forget about fixing the boot and just use the installation disc to remove the XP partition and reformat the C and D as one vista partition and install vista to it. Leave the E drive stuff alone.
Once you have reinstalled the OS then use it to recover everything from the C back up disc that you burned previously....That will restore it all back to work with all applications and storage that you have on E drive!