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Would it delete all of my old files so that I could restart over from the ground up?
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No.
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If I reinstall XP will it delete/restart everything on my hard drive?
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No.
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What would happen if I formatted my hard drive and then reinstalled Windows XP?
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The system would behave as it did when you first purchased it without the nasty malware. My advice, if you can afford it buy a cheap low cost laptop.