Can I install 10.8 over 10.7 and maintain windows xp boot camp functionality?
According to Apple's documentation:


  If your Mac has a Boot Camp partition with Windows XP or Windows
  Vista, you can continue to use your Boot Camp partition, but you can’t
  upgrade to Boot Camp 4.0.


So it sounds like if you upgrade to Mountain Lion, it won't touch your Boot Camp 3.x installation; you won't get Boot Camp 4.0, but you'll be able to continue using XP.

However, I think if you do a clean install of Mountain Lion, that will install Boot Camp 4.0 by default, which requires Windows 7. So you can only keep XP if you do an upgrade, not a clean install.