I was able to find my original Windows XP Pro CD though I doubt it really makes a difference but I booted that CD up anyway and followed the same sequence, however, this time it was a bit different.
I went with the first option again that says set up Windows XP now and agreed to the terms of agreement but this time it shows two partitioned and unpartitioned drives, C and D. It said I need to pick one of them to move forward with setting up Windows so I hit 'C' and it told me that the partition is either unformatted, damaged, full, etc. and that it needs to be formatted to move forward, deleting all my files on that drive.
I went back and tried partition D but it still says that C must be formatted before I go forward.
What should I do now? I'd really hate to lose all my files unexpectedly like this.