1. I will have to re-install XP and is this going to cause a problem with validation?.
If it is legal it should not. You will have to go through validation with the mothership.
2. I backed up my C drive to my D drive using the utility in XP. How much will I be able to recover? I have my old hard drive in the freezer hoping I can get it running long enough to recover everything that I need just in case I can't get anything from my back-up.
If that works you will need to copy the data off quickly - to a laptop, across a network, etc. No guarantees about what you will find.
3. The computer I'm using now is one that I purchased and it has a bootleg copy of Windows XP Pro on it. I'm curious if I'm allowed to install a legit copy of XP Home from my disks?
If you have a retail version of XP Pro you can install it on one machine. If it is not installed elsewhere and it is legit call Microsoft and they will walk you through it. If it is some sort of restore CD set you will not be able to.