For transferring files and settings, moving the hard drive will work quite well too. It would be best to do a clean install though of WindowsXP to make sure there aren't any problems with ols drivers hanging around.
Here is Microsoft's page on product activation:
http://support.microsoft.com/default...n-us;302878#4f
If I try to activate a Windows XP SP1 installation with a Product Key that has been used on another computer, I get an error message that prompts me to buy an additional Windows XP license. Is this new?
Yes. Beginning with Windows XP SP1, Microsoft is offering the ability for users in certain locations to purchase an additional Windows XP license for a second computer at a discount. If you remove Windows XP from the computer that it was first installed on, no additional license is required.
goates