Speeding up Windows without reinstallation?

Clarifications

It may be necessary, but only if you are in a complete mess that would cost too much to get out of.
Depends on why it's slowing down.
A scan with with one of the anti malware tools. Spybot S&D or AdAware (both free). Possibly even both , should get rid of any crap from browsing. Similary Antivirus. AVG do a good one for free.

What are you using for av . If it's Norton or McAffee, they are both very greedy and something like AVG may cost you less in more ways than one.

If you are using the windows firewall, get one of sygate or ZoneLAram now, it only blocks incoming by default.

If you are going to do these, download all the installs, disconnect from the net and don't go back on till they are in place.

Check to see what you have installed and get rid if you don't need it. Then clean up your registry with either regClean or CCleaner.
Have a look about and see if you got any files you don't need (be careful with this, you might be wrong! :D ).

Then defrag the disk.
Another tip is to boot into safe mode delete pagefile.sys (defgrag can't sort this one out). Windows will create a new one all in one piece.

Now you know why your mate said wipe and re-install. :D :D

If it's mainly on startup read up on msconfig.

Other things you can do is look at what services you need on automatic start.
For instance the indexing service which will cost you serious processing time, if it's running.

Once you reinstall the OS, you're putting back some old files and configurations that have been modified thru Windows Updates. Maybe what you're friend meant is doing a clean install of the OS after reformatting the hard drive. After which you will put back all your back up files and settings, and reinstall all your softwares. That would take you around 3 to 5 hours to complete.

Through reformatting hard drive and clean installing Windows XP, you can get rid of old unnecessary files or "leftovers" from uninstalled softwares that might be one of the reasons for system slowing down. i think that's your friend's logic. But there are easier ways to speed up a PC and getting rid of unwanted files. There is a thorough discussion on these in our forum here. Please refer and choose the best alternative solution to your problem.