It you were able to retrieve the product code you can call Microsoft and see if it is a valid product code. 800-642-7676
Installing the new copy of XP is not difficult, it will prompt you through the installation, it will also keep you informed of what it is doing while it is making the installation. this
tutorial will help you to understand the installation process. I wouldn't pay any attention to step 4, you shouldn't need to upgrade your BIOS.
Not knowing what has been installed on that hard drive I would suggest wiping it with a utility like Active Kill Disk
, this will overwrite the drive making for a clean slate to start with. This is a free download, the site has easy to follow instructions on how to make a bootable CD and how to use the program. You may have to go into the BIOS to set the CD-ROM as the first device in the boot order in order to use the bootable CDs for wiping the drive and installing Windows.