You can format the Computer but i feel like your computer is not too old to not to accept the service pack 2 ..
Check the system configuration and format the system Disk formatting
is the initial part of the process for preparing a hard disk or other storage medium for its first use. The disk formatting includes setting up an empty file system.
So you can format using the Windows OS CD --
Format the Drives and delete the partition
Check the Video -
- May help you A VIDEO HELP YOU HOW XP INSTALLS
If you want to format the pc and install the new window then
1) First take the Backup of your files
2) You need to have the Operating System Disc Windows XP Professional System Requirements
PC with 300 megahertz or higher processor clock speed recommended
128 megabytes (MB) of RAM
1.5 gigabytes (GB) of available hard disk space*
Super VGA (800 x 600) or higher-resolution video adapter and monitor
CD-ROM or DVD drive
Keyboard and Microsoft Mouse or compatible pointing device