Great to hear. The person who told me I couldn't do the partition actually works for Apple. Not sure of his title but he's the guy who teaches people how to use their Macs. I shall stop taking his advice.
Thanks!
After I posted the above, it occurred to me you might have a newer version of Lion on the mini than what you can currently download. This means you should get a USB case for the XT to allow you to clone the original drive. I'll paste my edited instructions below (I think it better to repeat myself a bit, rather than backtracking, now that there are more posts - it took me a while to make sure I had everything):
The drive isn't partitioned or formatted out of the box.
Provided the version of Lion you download is the same or newer as that which was shipped with your mini, the following should work (I'm not sure about how you go about downloading iLife, but I believe you can do that through the App store at no charge.) Otherwise, skip to the "Edit" section below. I would assume at some point, the download version will be the latest and compatible with current models. I don't think that's happened yet.
When you boot up on the Lion Install USB stick, you can select Disk Utility from the list of options. (Startup holding the opt key to select the USB stick as the boot volume.)
Select the new drive, and using the Partiton tab, create a single Mac OS Extended (journaled) partition, with a GUID partition table (use the Options... button to select GUID).
Once that's done, you can quit Disk Utility, then install Lion.
Edit: If your Mini came preinstalled with Lion, you'll probably need to clone the current drive's contents (this will also include your iLife install). The version of Lion shipped with the mini could be newer than the one available through the App Store. You'll need to put the XT drive in a USB case, then startup on the original drive's Recovery HD (startup holding down cmd-R, or opt and select it). Prepare the XT using Disk Utility per above, but add a second 1GB partition so you can install a Recovery HD partition there later. Then use Disk Utility Restore to clone the original drive to the new one (it must be installed in the large partition, of course). Check "erase destination..." to enable block copy. Make
certain you have the correct source and destination set.
Boot up again on the original drive and run the Lion Recovery Disk Assistant tool (available through the Apple support site). It should allow you to select the 1GB partition on the XT in the USB case for the install (I've only done it on a USB stick, but a USB HD should also work). After it's complete, that partition will be hidden from the Finder and Disk Utility.
You should now be able to startup on the new XT drive in the USB case (hold down opt on startup to select). If everything's fine, you can go ahead with the drive swap. Once complete, I'd recommend going into System Prefs > Startup Disk and make sure the internal drive is selected as default.
Sorry if this ran long. If you need any clarifications, please feel free to ask.