1) No you do not need the xp cd to reformat...there are third party programs that will allow that....the problem is that you will need the installation CD to re-install the operating system....as long as you have the COA original license from Microsoft then it is acceptable to use a copy of the media to reinstall. It must match the type of license that you have....but there is really noway to tell what you have as to type...only guess work...
A) if you purchased it online it could be OEM, DSP/OEM,or upgrade versions

B)if you got the install from the manufacturer it will more than likely be a slipstreamed (specified drivers and software for your computer) OEM version or just a copy OEM version

C) Corporate allows multiple installations of the same license

D) Retail versions come with operating system manuals and actual Microsoft tech support.

2)This can be accomplished by doing what is known as " The Second Repair Option" where the personal data and programs are saved the operating system is reinstalled over itself...

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When buying from online dealers that download software it is best to burn images of the download for back-up purposes and save them in a safe place.

In some cases you can redownload the software versions that you need and use the same licenses....but this is dependent upon the original manufacturer and how you registered and installed the software....in most cases you will have to start with the original version you purchased and then upgrade to the next systematically
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For the Direct X issue...do a search for all previous versions of Direct X and uninstall them first....then try to reinstall the latest versions!