The best thing to do is do a Ghost Image to a seprate HDD or partition, then allow Win XP to re format and install.
When you are done, you can use the "explorer interface" to "extract" your My Documents files, etc.
Other back up will work, but you need to make sure you can get to individual files for bookmarks, etc.
I didn't use the file transfer, but with a ghost backup, I'd definately go for it.