I just got a new laptop with windows 7 and of course compatibility issues with some of my older games. I was wondering if it would be possible to install windows XP onto a partition with the recovery discs that came with my old laptop? Or on a external hard drive?

That would be illegal unless you use the key from your old laptop and no longer use your old laptop.

Depending on your version of Win 7, you might have a free option to install xp-mode, which is an XP pro running in a virtual machine.
The Win 7 ultimate version have it included as an option - no extra charge.

If you are running some of the other win 7 versions, you might have to pay for an XP pro license, unless you have one that you are not using somewhere else.

Anyway, if you have sufficient RAM (4+ GB), I think it is a better option, compared to installing XP and dual boot (with a very few exceptions).

I have tried out the XP mode on my Lenovo (2Ghz dual core with 4Gig of pc 6200 ram) and found it to be very slow. I have set up a dual boot and XP works far far better like that. For dual booting, you will need easybcd to sort the boot menu out, its free to use - http://neosmart.net/dl.php?id=1

Depending on your version of Win 7, you might have a free option to install xp-mode, which is an XP pro running in a virtual machine.
The Win 7 ultimate version have it included as an option - no extra charge.

If you are running some of the other win 7 versions, you might have to pay for an XP pro license, unless you have one that you are not using somewhere else.

Anyway, if you have sufficient RAM (4+ GB), I think it is a better option, compared to installing XP and dual boot (with a very few exceptions).

Hmm, I will look into the xp-mode. Thanks for the tip :)