My personal recommendation would be to install a secondary hard drive (not as difficult as it sounds) and put all of your important information and files on that prior to installation. You won't need a large secondary HD unless you have lots of large files (music/videos/etc).
And rather than an upgrade from ME to XP, get yourself a full copy of XP. At Amazon.co.uk you can buy the upgrade for �83.95 and the full version for �84.99, so there's not really much of a difference in price, and with the full version, you'll know that only what is necessary is on your system, rather than any left-over Win ME files. It'll also make re-installing at any future point simpler, because you'll only have to install XP, as opposed to ME then the upgrade.