>  Copying what over?

Just the 1GB file that is fragmented so badly.  If the destination drive has 
enough non-fragmented free space the file should be defragmented as it is 
copied.  If your original drive has enough non-fragmented free space you can 
then just copy it back and it should be in a much better state.  Note that 
if this file is a windows system file you might need to do this outside of 
windows for obvious reasons.

>  I'm not exactly sure XP survives such a transfer while still being fully
> bootable from the new drive. Does it?

I don't see any big reasons why it wouldn't survive, you might have to 
fiddle with a couple of things before it booted though (like MBR and the 
boot.ini file).  There are also lots of 3rd party programs that will do this 
automatically for you, I'd be surprised if there wasn't a freeware one.

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