The recovery CD will basically set your PC back to factory settings. So yes, it would reinstall XP and probably some needed drivers. But backing up is always recommended because the recovery cd will not reinstall any software or drivers you have added since purchasing the machine, and of course, without backup you could lose all your personal data/photographs/emails/bookmarks/documents etc. Trust me - you only have to lose all this just once, to wish you had backed up. I speak from bitter experience.