If I need to purchase and install a genuine Windows XP operating system, does this mean I will lose all of my current installed 3rd party software and settings? Will I have to reload all other programs I have installed on my computer?
If you install the purchased version over what is already there, Yes, you will usually have to re-install everything as the Registry will have been changed. The programs will be there but Windows won't know about them.
Microsoft used to have a KB that covered changing the CD Key but I couldn't get it to come up just now. http://support.microsoft.com/default.aspx?scid=kb;EN-US;321636