BIOS UPDATE first time

[iPwn]

Give the clean install a go, see what happens. You can also run a Live CD of other OSes like Linux and see if all your hardware works such as your USB ports, if they work then its possible that there are issues inside the XP.

That's actually a really good idea.
Download something like Ubuntu and boot from it just to test the USB issue.

As far as the disks go... You need an OEM copy to work with the key that is on your machine (should be a sticker). The legal answer is to find an installation media and borrow from a friend or co-worker, but anyway you get it, you're licensed for whatever is on the side of your PC.