Nu7z,
The error message "current version is newer than the one being installed" happens when you try to use an older XP CD that is at a lower service pack level that the installation presently on the computer.
IMO your best course of action is to use the instructions at this page http://vbdotnet.home.comcast.net/XP_SP2.htm to slipstream XP SP2 into your existing Dell OS Reinstallation CD, then back up and offload your data, then do a fresh clean installation of XP onto your Dell computer.
You could also contact Dell customer support and order a replacement Dell OS Reinstallation CD for XP Home---the one they send you should have SP2 already integrated into it. They usually charge about $15 shipped for the CD.