If you want to replace xp with win2k, then yes you will need to boot with the win2k cd and delete all partition
on the disk. Create one partition and format with ntfs; win2k will then install. I would use a slipstreamed sp4 disk to do this.
Before doing this, make sure you have drivers for all of your hardware. Win2k is an older os and will have limited native driver support.
Note you do not need any third party software to make a slipstreamed cd. The service park will decompress and slipstream from a command prompt. While you CAN use a third party app to do this, I dislike installing an app that is not needed. If you need directions on how to slipstream and burn a bootable cd, post back.