When you do the install it asks you what partition to use and supplies an option to delete and recreate the partition. I have done literally hundreds of xp installs just follow the instructions.. If it doesnt offer this than its an upgrade version.
* edit
I reread your post.. I have never seen it say its using the disk before you got some fucked up shit.. Best you should use an xp boot floppy with a copy of fdisk and format.. Thats weird shit.
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