Hi rosh325, Have a read here;
But Microsoft recognises that machines do get upgraded. If, following the activation after setup, you do not need to contact the activation center for 120 days (any changes you make during this time being seen as acceptable when the system boots), then the sheet is swept clean and you can start again using the current hardware as the new baseline to make more changes.
If you get a new computer, you are entitled to remove Windows XP from the one that is being junked, and install the same Windows XP on the new machine but you will have to do the reactivation by a voice call and explain (unless, as was just mentioned, 120 days have passed since the activation was last performed).