Is it possible to work on Windows Workflow project using Visual Studio express edition? if not is there any work around?
Google is your friend. For example: Workflow Foundation Project Using Visual Studio 2008 Express Edition
Although the Visual Express editions do not support the Windows Workflow designers directly, the Workflow Designer control itself can be hosted outside of Visual Studio. Using an externally hosted Workflow Designer control provides you with a similar (but not identical) design experience to that enjoyed in the "full" versions of Visual Studio.
The MSDN technical article Windows Workflow Foundation: Everything About Re-Hosting the Workflow Designer describes how to host the Workflow control, and includes a link to a substantial sample. Although this sample is a Visual Studio 2005 C# solution, it can be built and debugged using Visual C# 2008 Express Edition without requiring any manual changes.
Note that this sample code by default creates Sequential workflows - but it's trivial to modify the sample code to create StateMachine workflows instead (or as well...).
There is further MSDN documentation and samples on hosting the Workflow designer starting at Hosting Workflow Designers.