Click on the link below and look for the USB adapter. Take the drive out of the laptop and connect it up to a desktop. Then delete any current partitions, make new ones (Primary and extended plus logical(s)) and full format them.
Put the drive back into the laptop and connect it with a parallel cable. Install XP from the desktop to the laptop.
When up and running make a drive image to an external CD burner or by using the desktop.
Sound reasonable (?) but will it work?
128 MB of RAM is a bit on the low side really, the maximum is 256 MB.
What has it got on it now Windows 2000?
Have you tried simply deleting the old partitions?