If you are booting from the install XP CD it has to work as that is the only thing running at the time. Once you allow XP to start off the HDD it allows files to become active and [b]Will Not[/b] allow you to format the drive in question be that a actual drive or a partition.
But with the install CD used to boot from it has to make it possible to reformat a drive even a compressed drive there is just no way around this as it allows you to totally format up the drive/partition that you are planing to install XP onto but you will be told that you are about to delete a drive/partition and you'll loose all your data do you wish to proceed and if you chose no it will not format up that particular drive which is what the install CD sees.
When all else fails you always have the option to boot from a floppy and either use the [b]FDISK[/b] utility to remove the drives partition/s or you can run a wiping utility that writes zeros to every sector which I personally find better as the format option only writes to every third sector leaving 2 out of 3 sectors untouched so if you had an infection present requiring the deletion of the drive contents it can return on the new install. This is much more common with the [b]Quick[/b] Format option available with the XP installer.
If you have several copies of Windows or any OS for that matter and you try to format the C drive/Partition from within Windows this will not be allowed as there are some files written to that partition/drive that point out where Windows is actually loaded so you can not either change its drive letter or format it.
Col
