The fdisk -l output shows that you have a hard disk of 38913 cylinders and currently use from 1 to 19456 cylinders. That is about 50% of the capacity.

You can use the unallocated space in either

(1) Expand the sda2 which is your "C" drive in Xp as it is a NTFS partition Type 7.
(2) To create a new primary partition sda3 and up to 11 logical partitions by using sda4 as an extended partition.
(3) Any combination of (1) and (2).

For (1) you need to run Parted Magic. Just use the mouse to drag the boundary of sda2 to any size you want.

For (2) You can use any partitioning tool in Linux which is amply provided by Parted Magic. I would recommend the terminal command "cfdisk" as it is one of the best teacher on partitioning. As an example cfdisk does not create an extended partition. If you use it to create the first logical partition then the first one is sda5 and sda3 is automatically used up as an extended partition while sda4 is reserved as a future primary partition. If you create sda3 as a primary partition and the a logical partition then sda4 is used up automatically. This teaches you that sda1 to sda4 are primaries and all logical partitions start with sda5. You will also learn about the partition Type number which is used by all operating systems in a PC but MS Windows never tell you about them!

It is the first time I see Disk Management fails to report a "C" drive that it is using but your partition table looks healthy to me. One thing though when the first time you install the hard disk Xp should detect the serial number of the hard disk has been changed and demand a reboot. The system is healthy after this reboot. Did this happen to you?

My suggestion is try to use and experiment with the new drive but do not mixed with the old hard disk with Xp. I believe it is safe if the old disk is attached as an external disk but as an internal disk it may not be safe. If you need to transfer data use a Linux is the safest.

Partition Magic is good for MS systems and should be OK in your case as you haven't installed any Linux in you hard disk yet. My message is Partition Magic claims to have ability to handle Linux partitions but in reality it doesn't, at least in some of the versions I tried, resulting me rebuild the partition table for a couple of hard disks that have 63 partitions inside.

In you run several Xp on the same disk you need to install a Linux inside and use its boot loader for manipulating the partitions.

You will in due time appreciate Linux is a much better and more robust OS when it comes to partitioning. It is also true that whatever MS and Linux read the same information on the hard disk. Thus if one says its is healthy the other system must do the same.