To format your machine with the XP CD first change your boot settings in BIOS. As the machine boots up look for something like "To enter setup press DEL now". Once in BIOS goto "BOOT" and change the first device to CD. Exit and save settings and make sure your XP CD is in the CD drive. The machine will boot straight into XP Setup. After a while it will ask you what partition you want to install XP onto. At this screen you can delete the Win2000 partition and create a new partition for XP. Once you have selected the partition to install on setup will continue and once its finished you will have an XP OS on your machine!
A word of caution though, as Pizza53 said make sure that you have backups of EVERYTHING you want to keep, as deleting the partition will erase everything on it. You may want to create 2 partitions, one for your OS and one for everything else, so that if you have to do a full reinstall or decide to change OS again you wont lose anything saved on the other partition, but that depends on your HDD size and how confident you are with doing it.
Any other problems just ask