Is office the only program you are worried about? There is a currently a summer deal going on for Office 2007 for students with a *.edu email address. (as long as you still have access to this email account you can get it) http://www.microsoft.com/student/discou ... fault.aspx
As far as fixing your XP install you can pop your XP disc in and attempt a repair. I have never tried to install an OS ontop of the current one, if it ever got to that point for me I just reinstall everything, which it sounds like it is time for you to do.
You can always boot to a live linux OS (ubuntu, fedora), mount your harddrive and recover information that is on it.