No, use Disk Backup to create an image to a USB external hard drive. Remember to create the bootable media but on an XP computer this requires a large download. If you have a Windows 7 computer than create the bootable media on the Windows 7 computer as the download is smaller.
If you do decide to create the bootable disk on the XP computer you can burn the iso with isoburner and install on the XP computer instead of mounting it with Magic Iso to install.
So to start with the first thing I need to do is create the image using Disk Backup.
When I do this does that mean that everything I have on my external hardrive will be wiped out?