Dave,
1) To transfer from one XP machine to another, use the file and settings transfer wizard.
2) What level of technical expertise are you at? What level of protection do you desire?
As I am the resident tech support for both my parents, my aunt and my younger brother, I have some slight experience with backups. If you have one computer, then a single external hard drive connected to it and something like Acronis or a free equivalent is probably a good bet.
If you self rate to "low" on the tech scale (i.e. Don't confuse me, just make it work) and have more than one computer, all windows or a mix of windows and mac, then let me strongly, strongly encourage you to purchase a windows home server (WHS). The home server is truly an appliance, like a toaster or a microwave: you plug it in and it just works. I will go out on a limb and say the WHS is one of the best software products MS has ever come up with. I've been using it since the first beta and have been extremely impressed. Quite simply, about once a day it copies the contents of your windows computer over to the WHS. It uses several clever mechanisms so that it only backs up things that have changed, significantly increasing backup speed after the first go. In addition, it provides Network Attached Storage (NAS), a "virtual" hard drive that all of your computers can see, and a really easy way of sharing files around the house. Finally, it comes with a nice web based file browser so you can access your home files from anywhere.
If you are "medium" on the techie scale you can either install the WHS software on a machine of your building (or any old wreck you have lying around), or, you can go with FreeNAS (
http://freenas.org/), which is a very stripped down linux (BSD really) NAS server, supporting (Among other things) rSync as well as FTP, Samba, etc. In addition, while it had been on hiatus forever, FreeNAS finally seems to have development going again.
Finally, if you're nerdtacular like me or Rich, you've probably already got your own situation figured out and are laughing at my n00b advice, but I personally use an SGI Onyx 2 (Big Endian MIPS, yay!) hooked up to a SCSI rack.
~ Christopher