Boot into the disc and format the drive and do a clean install. But why would you downgrade to XP from a superior OS (Windows 7)? XP has outlived it's lifetime, let it die.
XP mode is only in 7 Pro and Ultimate. You can install Oracle VirtualBox and run XP in virtual on Home Premium if you need to, which is the same idea as XP mode. If you need XP for a program, that's the way to go. Keep Windows 7.