Cloning the XP disc is Illegal no doubt. As for cloning your old harddrive I'm not completely sure, although I am pretty sure if you are cloning the operating system as part of that then yes that is illegal.

However, this is not the easiest thing to do because although most of the OS is on the hard drive there are some very significant parts of it on the ROM.

So simply.... buy XP (its not too expensive anymore) and copy your stuff across.... don't play with illegal things, because it may be hard to find someone to go to if it goes wrong!