Install Windows ME first, then install Windows XP. Simple as that. BTW, if you create ntfs partitions on which to install Windows XP, then you will not be able to read those partitions from Windows ME.
They work well together as i'm running that setup now on another workbench machine...
However there are quirks and things to consider such as didou said about file systems etc.
The most efficient way is also having them on seperate partitions, this seems to cause the least amount of headaches.
An excellent step-by-step can be found here...BlackViper