From what I understand, you can install Windows in Boot Camp (own partition) and then also use that same partition from within Fusion to not have to log out of OS X. I only use Fusion so I haven't tried that particular method.
Fusion does not need it's own partition, your Windows install actually sits in a subfolder in the Documents folder. You do need Windows discs to install it either way (Boot Camp or Fusion). I imagine the way you want to do it would work fine - boot into XP for gaming, use Fusion for other Windows tasks.
In retrospect, I probably should have went that route as well. I don't do heavy gaming on my Mac anyways but if I ever had the urge, that method would work best.