As long as you're not circumventing any DRM/copy protection stuff, it's perfectly legal to make backup copies for yourself and only yourself.
Circumventing and DRM is technically illegal [EDIT: in majority of western countries anyways], but IMO (morally?) acceptable, as long as you keep the copies to yourself as backups.
Windows installation discs, at least XP, should have no copy-protection whatsoever, so you should be alright. And yes, you can make an image too.