D may be where the original restore files have been put.
A format won't remove any partitions. You can do this when you do the get to the partition selection.
If you have an original full WinXP disc, then, if you know there isn't any data on this D drive that you need, then I would delete the partition, then reformat, then try the installation again.
If you are using a installation disc from a manufacturer, you may need the files on this D drive.
One thing I found when I was doing a re-install a while back was that after doing a full format, i couldn't install WinXP. I had to carry out a quick format first before it would let me continue the installation.