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I've got a 160 GB and an 80 GB hard drive. I want to do a dual boot with Mandrake and XP...can I put Mandrake on the 80 GB hard drive and XP on the 160 GB drive?
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Of course you can, in fact it is generally less of a hassle to do it this way.
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I also want to do a FAT32 partition so that I can exchange files between the two. What drive should I put that one on?
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I'd put it on the 160, but I'm sure it doesn't matter. It would just fit into your '1 HDD for each os' plan better.
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I'm guessing that GRUB is the best dual boot manager to use?
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It's what I prefer, as I think it is way more flexible and powerful, but some old-schoolers still swear by lilo. Go with what you are most comfortable with. If you are unfamiliar with both, go with grub.
Can't help with your upgrade question, sorry.