you only ever needed to defrag in safe-mode if you had problems. XP just handles everything better than the old OS's you may find that you can continue working while it runs as well but this is probably not a good idea.
personally i use Norton speed disk because I got used to it before i had XP but the XP defrag program is so much better than the old versions.
To add a bit to what horiz says, when you use the defrag in XP, don't have loads of programs open and, even though you might be able to carry on working while it's going on, it's best not to.
Ys, XP defrag is much better than previous versions and is a cut down on one of the current standalone products available.
Defrag frequently and you'll find it doesn't take long to do each time. I normally check each time before I do a full back up (once a week). As soon as it tells me to defrag, I do it, or even sooner if there are lots of red bars there on the analysis chart.