Re-installing Windows help

So, my comp has gone to the limit with malware and other shiit you wouldn't even think of.
I was gonna take it to someone to get if fixed and cleaned out, but then I found this CD in my computer cabnit.

It's a AreoOpen Recovery CD-ROM Windows XP Home edition/SP2.

So I put it on the CD slot and this comes up:
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Now, I have no idea what to do from this point. It asks to Install windows XP, but I don't know for sure if that's a safe option.
I went to my computer properties and figured out this comp is a Service pack 3, while the CD says Serive pack 2.

If I click Install windows XP, there's no going back.

If I DO decide to Install windows XP, what data should I need to backup?


[EDIT] I found on the side of my harddrive a sticky tag that said "Windows XP Home Edition AreoOpen"
Then it said my 25-character product key.

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