You are entitled to unlimited installation providing that you can prove to them you have the genuine Windows proof of purchase, a valid serial key, and in a single machine that is the same as the first installation. This criteria will be explained by Microsoft support line when you call them.
The basic procedure is that they will ask you few questions and you provide them with proofs they need. Once satisfied, they will guide you through manually entering some obscene digits to unlock your activation process (mine was 24 digits long, alphanumeric). This code is only to be used once and the next time you need to reinstall Windows XP, you must repeat the whole process of providing the proof they require.
Microsoft, by law, cannot discontinue a valid serial key unless they explain why they discontinued it--for example, it's invalid due to cracked or illegally obtained key. The only other way to discontinue a valid serial key is to discontinue the OS itself. Windows XP, both Home and Professional editions, is still fully supported by Microsoft.
Ask them to give you a comprehensive reason why your key is invalid, even though you have proofs they need, in a registered first class mail. If you really do receive this letter you now have a legitimate reason to hire a lawyer and demand your satisfaction from Microsoft in a court of law
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