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EULA for Windows XP Home states that you can install it on one single processor machine, at any one time. Basically, you can install it on another machine, activate it just as normal, and you'll never notice anything. However, if you ever load up your other machine running XP Home, it will want to reactivate, which will result in the other machine needing to reactivate next time... etc.
XP Pro's EULA is about the same, with the exception of Network installs, multiprocessor systems, and the number of network connections it can have. As far as I know, you can upgrade XP Home or Pro until the cows come home, too, provided the upgrade is a "Valid" upgrade path. Like, upgrading from XP Home to Server 2003 wouldn't be a valid upgrade-- you'd have to reformat and reinstall, and you'd likely need retail media.
So long as you're within the confines of the EULA with terms of how many copies you have running (one at a time for a single license), it doesn't matter how many times you've installed it in the past either. I've got an MSDN license (10 users per copy) of XP Pro, and I've at least done 20 reinstalls with it now, and I've had no problems.