Ok, either option, boot from CD, start the XP preparation thing, after you press F8, it asks you to choose destination drive. If you select your current C: drive, it will let you know there is a Windows there already, you can "install on top of that" or you can "wipe" and reinstall.

Honestly though, what I would do is pick up another HDD and install fresh new XP on that, stick old HDD as secondary and drag stuff off from it.