I've done hardware upgrades to a few friends and relatives computers running windows xp. It can be done without having to reformat and reinstall xp. With win xp you need an original retail xp disc (not an oem disc) and you'll have the option of doing a repair install when booting from the cd. The repair install redetects the new hardware and makes changes. All the data and programs are intact afterwards (if sucessful) and nothing changes for the user.
First of all it is very important to do a complete backup or image of the hardrive before you attempt. That way if the repair install doesn't work, just put all the old hardware back, restore the hardrive, and no harm done.
One time it did not work for me the first time, I had to do a repair install 2 more times before it finally took. You also need your windows xp key to enter during the repair install. One time I had to call Microsoft to get a new xp key because the old one would not work - it was an automated system, I didn't even have to talk to anyone to get the new key.
But as I said before, you need a retail xp disc, an oem one (dell, hp, etc) won't have the repair installation option because the oem windows key is only for the computer as it was purchased. But I have done the repair install on a compaq and an acer using a retail xp disc. Of course you need the same version of xp for it to work (home, pro, etc)
Here is a guide with pictures:
Repair Windows XP - How To Perform a Repair Installation of Windows XP - Part 1 of 2
I've done this 5 or 6 times and the end result was always a working but faster and better computer for the owner! Good luck!