1: If I install a software program on XP can I use it when I boot into Vista (or visa versa) or do I have to install it on both drives.

Same story as before. Because most programs make registry entries and more, you get to install twice.

2: Accessing files, such as music, movies, docs, pics, etc. can this be done from one OS drive to the other or do I have to enable sharing or some other permission like you do with networking. Will I be able to see the other drives folders.

Should work fine. The other drive is just another drive letter.

3: To do the install of Vista, it is done while booted in XP (on the desktop) and I just pick the drive that XP is not installed on, Meaning my 320gb formatted drive.

Yes. The FULL VERSION of Vista does that. You only need to point it at the drive to install to or rather the partition on the drive you want to install to is more precise. Here's the screen shots -> http://www.blackviper.com/Articles/OS/InstallVista/installvista1.htm SEE STEP 9.

4: During the install is there any potential for data loss on the XP drive since nothing is being written to it, or is there.

ABSOLUTELY!!! You are doing what is akin to a high wire act and should insist on a safety net at all times. (backup!)

5: If one drive fails can I boot into the other one.

No. Microsoft has yet to offer such a feature.

6: As my programs become updated for Vista and I phase out XP is it as simple as formatting XP drive and still being able to boot into Vista and use other drive for storage. I'm supposing any files on the XP drive can transfered to the Vista drive before formatting the Xp drive.

No. Microsoft has yet to offer such a feature. Additional, people discovered this limitation back in the Windows 98se to XP migration and were very upset about it.

7: What are the possibilities of Virus or Malware contamination from one drive to the other.

100%

Hopefully this helps dismiss a few issues and gets you moving along. But the BIG question is why do this? Vista is not going to be around much longer.
Bob