If it is the standard Dell Windows CD in the case of XP they are just copies of the original Microsoft OEM version. So you can change the partitions when you install it to one big 40gb one.
Before doing anything drastic have you checked the amount of RAM? Just been to look at a computer now, a local computer shop has told her it needs formatting as it is too slow and they will charge £80 for doing it.
I have had a look it, there is nothing wrong with it, but it has 192MB RAM with AVG and all the other crap. All it needs is a £15 512MB DDR1 stick.
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Wiping computer back to factory settings new
Wiping computer back to factory s.. new