Upgrading from Windows 2000 to XP is a far less troublesome thing than upgrading from 98. But generally, to avoid any possible calamities, you should do a complete reinstall. You can burn all your important stuff to a CD/DVD and copy them back when you're done.
Also, before you do connect your machine to the Internet, I really, really would install an antivirus and firewall. AVG Antivirus and ZoneAlarm are pretty good, and free (links are available in my signature).
Oh, one more question. Does that Windows XP CD come with Service Pack 2?