1) Download ISO EN and create A CD installer for KNOPPIX. ***I'd start with Kanotix as it is more suited to HD installation, is virtually debian and so dependencies are not an issue when adding software*****
2) I will have to create the FLOPPY Boot DIsk for my CD rom drive is not bootable, im using a USB CD Drive (Is this CORRECT way to install using FLOPPY BOOT DISK)? **** CD not bootable? use a fromiso cheatcode boot and then install from the hard drive*****
3) TO start installation, Boot from Floppy and when CD is detected, START KNOPPIX installation***** No floppy needed with above, also much faster installation from hard drive*****

To install,

1) I have to partition the E drive to three:
three partitions - a linux swap (say 1GB), kanotix (say 8GB) and separate /home (say 8GB) partition. IS THIS OK? *** this would be fine; use gparted on the kanotix CD to format, resize etc. *****

Now, after this i dont know what is next..... What I want o do is to use the BOOT.INI from XP as the loader for my OS... I want to get the XP as primary OS and have the option to select KNOPPIX as second OS... I want to do this so if i wantt o format the KNOPPIX I can just MODIFY the BOOT.INI and remove KNOPPIX selectio and FORMAT E drive later on... Please help... How can I do this.... *** Kanotix generates a nice GRUB page to select XP or linux - you can modify /boot/grub/menu.lst to change the order of the default OS. It will be Kanotix very soon! 2 days from 0 to 99% with me! Lots of help in Kanotix forum / Kanotix IRC to help you through anything ******