In true Windows style, it always comes to pieces eventually. Luckily, Microsoft are aware of their OS's regularly requiring a format and have now made it easier than ever to be back to square 1. Find someone elses CD, bang it in the drive and hopefully after BIOS it should ask you to (quickly) press f5 or f8 (I forget) to go to maintenance. Here, from what I remember you can easily surf through the options to format and then create a new partition and file system. I do recall it keeping my key details between builds, but I could be wrong so either find your key (we're onto you buddy

) or check out somewhere online first for a XP Home / Professional CD Key that will work after SP1.
Before you start the actual format tho..
Start -> Programs -> Accessories -> System Tools -> Files and settings transfer wizard.
Go here and make a copy of your windows settings, and maybe visit backup too. Save your Outlook emails and address book seperately, don't trust these utils to catch everything. Then copy / burn up any data you wish to retain. Depending on how riddled your PC is, you are potentially making a big bugged CD so make sure when you go to reinstate this shit to your PC you do so after a thorough virus scan (free ones available at places like AVG, google it).
I also recommend, that if you know what you're up to keep a copy of your registry for future reference. There's always some app you don't have all the necessary shit for once you're done formatting. Make sure you make another CD full of drivers for your mobo, sound, video etc first as well.. Else you might get shafted upon reinstall.
Good prep is the key to a successful reinstall, the easy downhill part is the actual performing of the format. I hope this is helpful, as it seemed like maybe you weren't really getting what you were after
I really do recommend that you download a good virus scanner, and just as important thesedays is a good spyware cleaner such as Adaware from Lavasoft (google that too).
Good luck man