The only time an XP install disk will format a drive is when installing Windows on an unformatted NTFS type partition. If this is a second and not primary drive you would use the Disk Management tool found in "Control Panel>Administrative Tools>Computer Management>Storage" in order to right on the drive seen as a rectangular item in the screen there. You simply right click on the drive and choose one of two options either quick format or full format.
To wipe an XP with the disk you first delete the existing primary and then create a new one and let the installer format it when going to copy the setup files to it afterwards. Vista now has the format drive option seen in the repair tools section on the installation disk there. Plus you can now resize partitions with the newer Disk Management. To simply reinstall XP you wouldn't have to reformat the drive. The installer will delete the current installation. That includes the Windows, DocumentsandSettings, and Program Files directories.
