IF your upgrade disk is able to do a full install then the best way to go about this is to reboot, hold delete and enter the Bios.
Ensure that your boot order is set to include CD drive above the hard drive and then put your XP disk into the drive.
Reboot and the computer should boot from your disk. Then follow the onscreen instructions to install windows. When presented with your Hard Drive you will be able to delete and format the partition. IF you are sure you want to do this and are aware that evrything on thed rive will be lost, then delete the partition and format it in NTFS. After doing this the computer loads XP and will start to install the Operating System.
Make sure you dont boot from the CD a second time...allow it to continue.
If you are using a SATA drive you may need to install drivers before installing the OS, depending on your board and drive this may involve presing and holding F6 during the install to load these drivers from a floppy disk.
Do NOT worry about this stage unless you have a SATA drive.