no you don't need to do it, but it is the best way to go, mainly because wiping your system when you install major new hard ware is best stops conflicts with drivers etc... also any and all spyware and virus's that may be hidden on the machine are destroyed by the format. So you start off with a faster o/s and a clean stable o/s.
reinstalling windows is the least headache way. running the risk of system instability other wise. And when your having new hardware your allready running the risk of hardware instability tell you get it burned in.
I've heard of people running 98 on their desktop changing their hardware setting to "mobile", like a laptop, and Windows limits the hardware it has to recognise to feel like it is still a "legitimate" copy of Windows (hot-swap drive bays, etc.), not even sure if some setting like that exists in Xp. You would also have to learn how to change some hardware ID's...(google it long/hard enough you can learn anything) but everyone is right, reformat/ clean install is the best way to go. Preferrably to a new hard drive and set your old one to "slave" so you can transfer documents and your dektop theme, etc., helps you remember all the different programs you have to reinstall as well. Plus you get that snappy new-computer performance from a clean registry like ming says. Although you may have to call in to reactivate Windows, no big deal. Call late in the evening and you get support personnel in India, who aren't as scrutinizing as support in USA (midnight would be 8,9,10-ish there)...;-)
It is possible to move it from machine to machine on removable hard drives (albeit a disclaimer here, where I see this done, they qualify for the corporate edition of winXP, so no WPA). Specifically, the school pays about $16 million for a site liscense with Microsoft for any and all MS software they might use...
In the networking lab where I've had many of my classes these past so many years; they have removable hard drive bays in each of the computers. Course, all their computers are the same make/model, albeit not all the cards that have been added to them are the same (for instance some have 2 NICs, and others only 1, and some have a newer addon graphics card, above what's integrated in the mobo, whereas others don't).
Pretty much, it's not even installed on each comp. There's a Ghost image for the lab, and it's just burned over to enough installable hard drives to cover all the boxes. Course, that's seperate from student disks where we might have other things we were setting up in our classes.
All said (and the networking lab didn't pose as many differences from one box to another, that a major system upgrade would), one is better off doing a clean format...