The Microsoft detected my OS on my older rig that it is illegal but I still can use the pc, there is a notification message on the wallpaper that I cannot remove it says I was a victim of counterfeiting , is re-installation of XP will do? It is ok if I cannot use it anymore it's just my testing rig.

is re-installation of XP will do?

and you ? is what !

If I'm reading it right it seem to be that you want to know if reinstalling it will make it not a counterfeit copy ,my answer is NO! it will always be a counterfeit copy . or if reinstalling it will get rid of the nag screen then my answer is yes

The counterfeit message will appear after a specific windows update. So even if you format, if you install the update again, it will re-appear.