You don't NEED to format everything. You will need a few things though - make yourself a linux boot disk or boot-cd. Reinstalling XP will trash your bootloader, which sounds like you're using lilo currently. The XP install will walk all over lilo, so you'll need the boot disk (cd) to get into linux, and reinstall lilo. I have never personally played with 2 versions of M$ on one drive, but I would think + hope their windows bootloader will allow that to continue. I'd make the linux boot disk, put XPPro in the CD, reboot, then boot from CD, tell it to format the old XP and install there. Should be that simple.
Anytime you tweak partitions and whole OSes, you run the risk of losing data. It shouldn't happen, but that isn't a promise that it won't. Be sure to back anything important from all of the OSes before you do this.