No, it won't work. XP refuses to allow keyboard emulations (CH programming done this way) hence CH won't work with XP no matter what and there's no workaround (do a search in this forum - someone got an e-mail from CH support to that effect).
Dual boot is a piece of cake but you need to install Win98 first (make sure it's Win98SE!!!). After Win98 is up and running - slot in Win2000 or XP and it will ask you whether you want to upgrade the existing system or install a separate version.
After install on each boot you'll get a selector which system you want to boot. I have 98Lite/XP Pro running like a charm. 98Lite incidentally takes up very little space. The pain of course is that you have to d/load 2 loads of drivers when you upgrade yours for, say, video. And you have to re-boot when you feel like flying:). I have nothing under 98 but flying stuff. The rest of work/games happens under XP.
Hope it helps:)
p.s. You still driving your ambulance?

The Joystick and programmed buttons (once programmed) will work in XP.
Wow Doberman - are you sure? I need to get home and try it...