Yeah, the 80GB drive 'should' present no problems at all (for what its worth, I upgraded the original 6GB drive in my ageing 400MHz Dell Latitude with a 40GB model and it works fine).
However, there is no need to re-install ME from scratch again before installing the upgrade version of XP. Just install XP to start with and then at some point during the install you will be prompted to replace the XP CD with your WinME CD. XP setup should then scan the qualifying CD and tell you to replace it with the XP CD to continue the XP setup.