In WinXP I use the "Safely remove" feature. It says the HD is safe to remove but I feel it still spinning. If I wait another 10 seconds, it stops spinning.

Typically I do wait until it stops spinning before removing it.

Is this necessary?

If so, is it a glitch with the "safely remove" function that tells me it's safe before it actually IS safe to remove it?

Thanks!

I must admit I never use this function and simply unplug the hardware, haven't lost a USB device yet.
HDD do take a while to spin down after they are stopped, but as long as you're not throwing them about you should be fine.

So OK to unplug (from usb) while still spinning (as long as no files open or data transferring)?

Yep, once the activity light has gone out then it's safe to unplug.

I use this one: My Passport Essential 320 GB USB 2.0 Hard Drives ( WDME3200 )

There is only one light and it's on when it's plugged in whether there's activity or not.

All that the safe remove is reporting is that there is no data moving, not whether the drive has spun down.
If you know data has stopped then removal should be fine.