I'm assuming you don't have a backup disk image or you would have already restored it.

You may be able to recover XP by doing a repair install.  Your data should remain intact.  But first ...

You may still be able to make an image using something like Ghost, Acronis True Image or DriveImage XML.  You may want to make an image before trying the repair install in case anything goes wrong.

Ghost, ATI and DI XML all work pretty much the same but since DriveImage XML is free I'll use it as an example.

If you can't boot into XP or a HD-based OS you're going to have to create a boot CD (I assume you have a working computer available to do this).  Ghost and ATI come with boot CD creators.  It's a little more difficult with DI XML.  Skip the next step if you have a Ghost or ATI boot CD.

Create a boot CD with Bart's PE and the DI XML plugin.  That will take several hours but you'll be glad you have it.

Boot from your CD and create the disk image on the removable drive.  You now have an exact copy of your HD (actually, just one partition but let's not be picky about terminology).

Now you can reformat the HD, reinstall Windows, whatever you want.  I'd be wary of restoring the image unless you know exactly why XP failed.  Putting bad data back on the HD won't leave you any better off than you were before and if you can do a repair install or fix the registry or mbr or whatever is causing your failure you don't need to restore from the backup image in the first place.

If you have to do a complete reformat and reinstall XP you can extract selected data from the image but you will still need to reinstall a lot of your applications because you can't reliably copy selective registry information.  For example, reinstall FS, the copy the data files from your image to your HD.