Legality of reusing XP depends on where you are. AFAIUI the dictate that OEM
licences cannot be transferred may not be enforceable in all countries, in
fact the restriction itself may even be illegal in some jurisdictions under
consumer-rights laws, although that has neve been put to the test.
Obviously it would not be legal to replace Vista Home with XPPro though. You
must use a product of equivalent or lower value to your licence.
Activation is your other concern, though this can usually be overcome by way
of phoning the hotline.
I'll probably end up wiping XP off my desktop, then (which is a retail
copy), putting it on the laptop and just installing Linux or something
on the desktop. I've been using my wife's Vista laptop since my own
broke, and I'm not sure how long I could take this.
Funny how MS's policy here is probably going to end up driving me
towards installing an open-source OS on one of my PC's.