Definitely, though I wouldn't personally recommend you install it as an application - on my laptop, I have C: which I shrunk down to 50GB, then D: for storage which is 120GB - and that left a whole ton of space unformatted. Right click 'My Documents' and relocate it (find in your properties, location, and overtype C: with D: - then accept and Windows will move your stuff to D: - great if Windows packs up).
Now if you install Ubuntu (or probably better - Mint, which takes less setting up) you can dualboot. From Ubuntu, you can browse your storage partition - and USB's that you plug in.
You can open files and applications - Windows applications will try to run under Wine - but often don't work because of the nasty way they're intsalled. Some can be installed under Wine, but it's often overrated. Right now, the only thing I use that needs Wine is Picasa.
Relax - if you really need to run Windows apps, then a quick reboot is all that you need. You can speed up Windows more by disabling networking and as many services as you can too - and then you won't need to run security software (keep it lean and mean).
As for launching Apps - I can browse from Linux, /media/XP/Program Files/7-zip and it won't launch with WINE (not that I need it) but ccleaner runs perfectly (totally useless in WINE loz) - so it's a bit of pot luck.
In Ubuntu, if I need to run something from Windows (I do love Yahoo Messenger...) then I use Virtualbox (and NOT the OSE version which won't work with USB). It's okay - but if I need to do heavy work (I used to prefer Photoshop) then I'd just reboot.
Remember, there's no need to 'switch' - you can just keep them both. After about 18 months of doing that, I very rarely use XP for anything.
Office 3.1 now opens, edits, and resaves .docx files and other similar new style office docs without any problem - though it's generally best to keep an ODT file in my opinion (actually, I always save as ODT and also export as PDF to send to other people - PDF's are cool).