why would u reformat the desktop, download window xp then download ubuntu and then install!! just download frm your frens comp or anyone and when u do the installation u will be given the options to either partition your drive for installation or do the full installation..
deleting the xp system is ur choice!! bt u said u have only 40 gb which is again very minimal..i would only install ubuntu!! and about the compatibility i wrote above to make ur old softwares work in ubuntu..