Can't you just format it by clicking on 'my computer', selecting the disk then clicking on 'format' in the menu?
Or going to 'all programs' and selecting 'accessories' then 'command prompt' and typing 'format C:'?
Perhaps downloading a free linux distribution would let you format the disk, bypassing Windows.
I wouldn't be in too much of a hurry to go back to XP. I was worried about getting only the basic Win 7 on my new computer because I expected to replace most of my programs.
However, I was surprised to find that almost everything worked. During installation, if there were likely to be problems Win 7 usually issued a warning and asked if i wanted to re-install it in compatibility mode. You can always choose this yourself by right-clicking on the setup program and using the 'troubleshoot compatibility' option.
I am quite happy with 7 and have no wish to go back to XP.