I don't understand how you have connected your networking hardware:-
<<< and have a desktop computer running XP home conected to a modem via USB and a wireless router conected to the modem. >>>
If you have an ADSL USB modem, it cannot connect to a router. A "Cable Modem" (Telewest and NTL) does support both USB and Ethernet connections, but they cannot both be used simultaneously to run two PCs.
Depending on the type of broadband, you should use a combined "Router/ADSL Modem" for ADSL connecting via the phone line, or a "stand-alone" router which connects to the modem by ethernet for "Cable".
All PCs connect directly to the router and get their internet access over the Local Area Network from the router.
<<< Question is Running XP pro on all machines would it be worth while upgrading >>>
I believe that XP Home Edition supports a maximum of five computers in a network, so for a greater number of PCs, XP Professional would be required. Otherwise, there is no problem with mixing XP Home and Pro, or indeed earlier versions of Windows, Linux or Mac.
<<< and do I need a software to help with file sharing >>>
No, Windows' File & Printer Sharing will let you share selected folders and/or printers over the network.