Firstly, this may not be important to you, but Windows XP is no longer covered by Microsoft's mainstream support:
http://support.micros...+Home&Filter=FilterNO
So, assuming that you don't care about that:
1) Download the latest AVG and copy it somewhere which isn't your machine's boot drive, e.g. a second hard disk, USB stick, whatever.
2) Make sure you have all your data backed up. This doesn't (necessarily) just mean your Office documents - it also means things like configuration files, your browser favourites etc. Almost all modern software persists user configuration data in the Windows registry but most applications have a facility to save this data to disk so that you don't have to set everything up again if you need to re-install.
3) Disconnect from the Internet. This may be as simple as unplugging the network cable out of the back of the machine or, if no-one else shares your Internet connection, switching off your cable modem and/or router.
4) Still disconnected from the Internet, reinstall Windows AND NOTHING ELSE! Ignore the nagging that it can't find an Internet connection for Windows Update, activation etc. Don't bother necessarily about configuring Windows at this stage...
5) Still disconnected from the Internet, install AVG from the USB stick (or wherever you saved it) and let it do its thing. Ignore the nagging that it can't find an Internet connection to update its database etc.
6) Still disconnected from the Internet, get AVG to do an entire disk scan. Assuming your Windows CD is genuine (!), there's be obviously no malware for AVG to find, but it will nag you until it's done its its initial scan.
<more to follow>