-> Yes, you can upgrade from ME to XP. The specifics: you can upgrade to Win XP Home from 98/SE and ME. You can't from NT 3.51, NT 4.0, Win 95, Win 200 Pro or Win XP Pro. You can uprade to Win XP Pro from 98/SE, ME, NT 4.0, Win 2000 Pro, Win XP Home. You can't from Win 95 and NT 3.51.
Link to upgrade options:
XP Upgrades
-> Is it worth it? Yes. You'll be able to play your games under this release along with have much better stability than under ME - ME liked to "lose" memory on my system.
-> Faster? More Stable? Yes. However, I think you'd still be better off with formatting your partition and then installing the product in full rather than upgrading.
-> What does it have that ME doesn't? Stability. More themes, options for more "skins" later on, etc.
Damn, I started to sound like a MS salesperson there for a minute - yuck!