As suggested, the best thing to do is to bite the bullet and get a better harddrive. Visit
www.techbargains.com and you will find ones that are really cheap.
Use the Files and Settings Transfer Wizard to make a copy of all of your data and settings to a separate directory on your current harddrive before upgrading. The Transfer wizard is under Accessories - System Tools.
I would then set up the new harddrive as Drive 0 (the boot drive) and the old drive as Drive 1 (you do this buy plugging them into the right IDE cable port from the motherboard to the harddrive. The cable will be labeled. Hopefully, your motherboard uses Cable Select to assign harddrive priority). Leave everything as it is in the old harddrive.
Next, split your new harddrive into at least 2 partitions. A big partition for all your current data and a small partition (30GB or so). Go ahead and do a completely clean install of your WinXP, Antivirus software, your spyware detector and other security software.
Next download all updates to everthing you have installed above.
Next copy all the drivers, your WinXP Pro licensed CD, install files for other programs you always need, etc. To that small partition on your harddrive (it should show up as a separate drive on your system - Drive D: perhaps).Keep each program in a separate and clearly labeled folder.
Now, go ahead and install everything else you need on the main partition and then run the Files and Settings Transfer Wizard again and restore the settings from that old harddrive which should be designated as drive E: on your system.
What you have done now is upgraded your harddrive to something bigger and more powerful, probably. You have created a partition that contains all of the install files you need in case you need to wipe your harddrive clean again and reinstall. You also have your old drive there to use as your backup drive once you have transfered everything from it and reformatted it. I would use Norton Ghost or some other program to make a backup on a weekly basis to your old drive in case things get ugly.
This is long-winded, but it is the most convenient solution for dealing with data in the long term.
Good luck.