livinginspain,
With Microsoft, you do not buy their program, you buy a license.
If you are going to update to the legal copy of WinXP and the version you have is exactly the same as the copy currently on your computer, you can just change the CD-Key to the one on the license agreement you bought.
If the version on your computer is a different version, then you will need to do an install since your legal key will not work with it.
The versions sold retail are WinXP Home and WinXP Pro. The dubious copies are usually WinXP Pro Corp and they use the CD Key is FCKGW........ (I was wondering if that sounded familiar.)
When you try to chance the CD-Key, if it does not accept your legal copy, then you will need to do a fresh install. (All is not lost if you do a fresh install since you can do the install without losing all your data.)
Take Care,
Richard