Hmmm
Missed your edit
When you boot off the CD, XP should give you a choice of overwriting the existing OS (which is what you want). You shouldn't have to erase anything. And, no, a full disk erase would mean (since you don't have a working OS yet) booting off a floppy, and using that to erase the contents of your HD. Since you probably don't have one handy, try letting the XP CD do the work for you. New HD = nothing to lose!
Missed your edit
When you boot off the CD, XP should give you a choice of overwriting the existing OS (which is what you want). You shouldn't have to erase anything. And, no, a full disk erase would mean (since you don't have a working OS yet) booting off a floppy, and using that to erase the contents of your HD. Since you probably don't have one handy, try letting the XP CD do the work for you. New HD = nothing to lose!