It could be lying. What it means is it wants verification, as do all upgrades. Every time I installed w2k upgrade on various pc's it would ask for 98 disc, so unlike a non-upgrade you can't install without a previous os verification. I'm not sure with xp upgrade but with w2k upgrade I can install as many times as required. If you can then it's better than a full xp disc which is license restricted.
Unless I've misunderstood.