Maxbert, if you boot from the XP installation cd it should prompt to either a resinstall with existing settings or a clean install formatting the hard disk first. I would go for that, I have just reinstalled XP on my 5 yr old Thinkpad and notice the difference. Make sure you either have the driver disk to hand or preferably download the latest drivers for all the laptop devices before you start.
By the by MS update will download the latest SP (3) with no probs.