Yeah, during Windows Setup you can format the drive. I would get to where it shows all the partitions, delete them all, then exit Windows Setup by pressing the F3 key twice and begin again. That keeps your bootup from having two listings for WindowsXP, one of which is a ghost of the previous installation. There are other ways to address that, but that's a newbie-friendly one.
Additionally, if the computer has any USB memory-card reader or other USB drives, unplug them before beginning Windows Setup so they don't heist drive letter
C: from the actual hard drive.
If your reinstallation CD will take the computer back to a version of WinXP that doesn't have Service Pack 2 onboard, then you should take precautions against worm attack by keeping the computer unconnected from networks (wired or wireless) until you have SP2 installed and the Windows Firewall activated.
To do that, use your working computer to pre-download Service Pack 2 from
this page at Microsoft.com, save it to a CD, and patch the computer with Service Pack 2
before you let it have a network connection of any sort.
Also, here's
very good antivirus software that's free for home use, skip the security toolbar and
set it up like this video shows. And
Microsoft's antispyware, Windows Defender. And if she has a broadband connection, it would be good to put a
router between the computer and the modem to be her front-line defense against network attacks.