Tried to reinstall windows xp on my desk top after pc failure

yesterday spotify failed and I restarted my computer only to get a message that windows was not a legal copy - I have only been using it about seven years on the desktop. I tried to enter safe mode, could not get there, tried to take computer back to earlier good configuration it would not. Decided to put the disc of windows xp in the drive and tried to reinstall from the disc- it asked of course for the 25 digit code from the pack which I entered only to be told that it was not the right number???? I am locked out, safe mode does not work and neither does the printer the scanner or any other gadget attached to the computer- I cannot access my drives or my files. I am devastated. How do I get it to work again- I think it is something to do with last weeks windows updates which were a nightmare to get to install and load- they took hours and failed at no 19. I have probably not shut down since that shut down - if I switch on now I just get the installation disc query from windows xp installation - add disc to install windows xp- function keys do not seem to be working either to go into safe mode or any other access to the drives.
If I buy a copy of windows 7 (at enormous expense) and install from scratch the full version will I lose all my files and s/w- can anyone guarantee I can get back into my computer by putting such an installation on the computer or might I just lose that money as well as my whole darned computer access as is now? One occasion where the power of prayer does absolutely nothing.