wow... people are making this entirely too complicated for you. Seriously, doing this with XP is easy as heck.
1. enter setup (the BIOS) as your computer boots up. usually hitting one of the "F" keys or Delete does this for you. The startup screen will probably tell you what key to hit so look for it.
2. Change the boot order to make your computer boot from the CD-Rom first (just look around in the BIOS to find where to do this. if you accidentally change something else, you can always exit without saving your changes).
3. Insert the XP disk, then exit setup and save your changes.
4. When it tells you to hit any key to boot from the CD, do that. (if you don't hit a key, it will boot from the hard disk, so pay attention!!)
5. A nice Blue screen will pop up indicating that you have begun your install.
6. You'll want to delete your current partition, and re-create a new one. Then you will format the new partition. Just read carefully and you will know exactly what to do. (There are quite a few hoops to jump through to get this done, because Microsoft tries its best to be idiot-proof. just remember to read, and know that since you're formatting, you can't possibly hurt anything if you do something wrong.... and you can always start over).
One small detail about XP that is completely optional, but a good idea, is that XP doesn't inherently clear the master boot record during the format. Which can cause problems if you are re-installing your OS, or if you are upgrading from another OS, because they can leave traces of themselves in the mbr which will cause you to get a boot option everytime you turn your computer on, i.e., "select which OS you wish to boot...". Not a horrible thing, but rather annoying. You can bypass any future issues by going into recovery console, and running the command "fixmbr". its not as good as the old fdisk /mbr for <98 systems, but it will have to do for now. the command takes all of a nano-second to run, so don't be disturbed that it finishes too quickly.
Also, formatting XP and getting it back up and running is a real pain without high-speed internet access. If you're on dial-up, prepare to spend a LOT of time sitting around and waiting.
By the way.... if you think about what you were trying to do, you probably would have figured this out by yourself. When you go to a command prompt, you are running DOS on the C:\ drive. When you type Format C:, you would actually be deleting the format.com command you are using to format the disk. When you take Format.com and put it on a floppy, or a CD, you are no longer running it from your hard drive, so it can run with no problems. Its a huge recursive dilemma. Quite the Catch 22!
Hope this works for you! E-mail me if you get stuck!