Always better to do a fresh install.
If you can backup your data, that's the way to go.
If you must do an upgrade, be prepared for stuff in ME that won't work in XP, or won't upgrade properly.
You can do a fresh install with the upgrade disk, just set the computer to boot from CDROM first, and put in the disk.
Hit any key when prompted, and select NEW INSTALL from the options. You will later be prompted to insert your ME disk as proof of ownership, but no files will be used from it.
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