when the windows setup window opens, you should have the option to install windows by hitting enter
then it asks if you want to install on selected partition
what you should do first is delete all partitions, follow the instructions it will tell you how.
and you should make sure that before you start, that the bios is set to boot from cd
if you do not see a black screen with the instructions to press any key to boot from cd, then you do not have the bios set up to boot from cd and you will have another parallel installation.
I will look further for a user guide for you, but if we are going to delete all the partitions, then you will lose what ever partition that was on there for recovery,
which should show when you see the page with all the partitions listed.
http://windows.microsoft.com/en-US/windows-xp/help/setup/install-windows-xp
http://www.windowsxphome.windowsreinstall.com/sp2installxpcdoldhdd/indexfullpage.htm
http://aumha.net/viewtopic.php?f=62&t=44636
Clean installs of XP sites
you might want to read the instructions on the sites above to know the steps to a clean install.
another note, go to the Microsoft download center and download sp3 and sp2 if your cd is sp1, because windows updates will not work with other than sp3.