Provided you have a Windows XP disc that contains Service Pack 3 integrated you should be able to perform and inplace upgrade repair without much problem.
When you click the Setup.exe you should receive a prompt to upgrade and I believe it will perform a check and warn you if there are native incompatibility issues as I recall.
From experience, as I recall, you may want to uninstall PowerShell if present as well as remove IE 8 and revert back to IE 7 or 6 might even be better.
This link may help
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