1. "Reformat" typically means (roughly) to "completely delete every trace of everything, including the operating system (WindowsXP) from the C drive". Thus when you reformat you wont be able to preserve XP. You can format your drive via a bootdisk or even just before you start the installation fo the operating system
2. Typically "reinstall" means to "reformat" and then install a copy of the operating system onto the newly cleaned drive however there is the option to
just install the operating system without "reformating" -- it's not as clean and sometimes has complications but in most cases it'll work. To do so, pop the WXP cd into the drive, boot up, select the option to install the OS and for the last step, select "Do not format" or whatever it says.
3. An option you might want to look into is to use the System Restore function of WindowsXP; it comes default as enabled so you might have the initial system restore point