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Upgrading Windows:
Upgrading from Windows 98 or ME to Windows XP can either be a walk in the park or a pain in the neck depending on how lucky you are and how much you know. For this reason I recommend you only try it yourself if you're comfortable with your ability to pull it off and, if then, I recommend not getting in a big hurry. An upgrade from Windows NT,2000 or XP to Windows XP Professional is usually a lot less hair raising and leaves out some of the problems with program compatibility you might face with the former.
Upgrade from Windows 98 or ME to XP or XP Pro
Before you upgrade your existing operating system to Windows XP it's always a good idea to make sure your existing installation isn't a total mess. If your computer is fraught with spyware, adware, viruses and other nasties your best bet may be to choose the fresh install option on the Windows XP CD as all of this will affect an upgrade if not totally stop it altogether.
If your computer isn't quite that bad off I would consider things like uninstalling programs that you don't need, running scandisk and even defragmenting the hard disk and then run the Upgrade Advisor from the CD to see what kind of hardware and software compatibility problems you can expect to be left with after the upgrade.
After you've hopefully paved the path to a smooth install, insert the Windows XP install CD and select install Windows XP. If you are running any type of program that will interfere with the installation process you should see a warning giving you the option to end the program. I would suggest that nothing be running but the XP upgrade CD.
At this point you will arrive at the Welcome to Windows Setup screen(see image below) where you will be prompted to choose between an update and a clean install.

Choose whether you want a clean install or an upgrade and move on to read and accept the license agreement. Here you may be asked to enter the product key which should be on the back of the Windows XP jewel case. Once you've entered that you'll move through an upgrade report that will basically duplicate the upgrade advisor and then onto a page asking you if you want to update the setup files via internet.
If you have internet access I strongly suggest that you choose the option to upgrade the setup files. It can take a bit of time for the download but Windows XP will be more stable and secure and you may avoid some bugs in the installation process. It's always good to do something right the first time.
After upgrading setup your PC will reboot itself. If your computer prompts you to hit a key to boot from CDROM dont. It has been configured to do what it needs to do and you should just leave it unless Windows XP specifically asks you for information.
After Windows finalizes installation it will reboot itself once again and allow you to connect to the internet and activate and optionally register Windows. You're mostly done after this. The only real things left to do would be to check to make sure all of your hardware and software are still working and if you performed an upgrade it may be a good idea to defragment your drive again.
Upgrade from Windows NT,2000 or XP to XP Pro
Upgrading from Windows NT,2000 or XP to Windows XP Professional is fairly painless. It's interesting to note here that all 3 of these operating systems, unlike Windows 98, are founded on the same technology.
If you've ever tracked people on your web site with a good stats program you'll notice that the user agent listed for Windows 2000 users is NT 5.0 and the user agent listed for Windows XP users is NT 5.1. This should give you a bit of an idea of what exactly is going on
To sum this all up just stick the CD in and choose upgrade. Walk through the steps given and when the installation process actually begins, just leave it alone until Windows finalizes the installation and gives you the option to get online and activate and register Windows.
Hopefully everything worked out for you and you're good to go.
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