Clean Install Question

I am in the process of doing a clean install of XP Home using the Upgrade CD. I boot from the CD and everything's ok, but I am a little miffed about the message I get when I go to delete my C Drive partition so I can recreate a new one. This is what is says:

"The partition you tried to delete is a system partition.

System partitions may contain diagnostic or hardware configuration programs, programs to start operating systems (such as Windows XP), or other manufacturer supplied programs.

Delete a system partition only if you are sure that it contains no such programs or if you are willing to lose them. Deleting a system partition may prevent your computer from starting from the hard disk until you complete installation of Windows XP."

What I am wanting to know if it is alright to do this and that it is not going to stuff up my system. Please advise.

It's simply a warning advising you that the partition you're about to delete is a system partiton, which means that you will lose all data contained within the old partition if its deleted.
After deleting the partition it will then prompt you to format, after this completes, the Windows installation begins.

Only proceed if you are aware that all data contained within the old partition will be deleted.

When you say data, do you mean files relating to Windows, that are okay to wipe as I am installing an OS and they will be replaced so my PC will run okay when the new one is installed?

Anything and everything will be lost. This includes all your programs and anything you created/saved/downloaded with them. You will have to reinstall all your applications. When windows is reinstalled it will be a 'fresh' OS with only stuff like 'paint' and not the masterpiece you painted with it. In addition, all your settings will be at their defaults. It's a good idea to download drivers for your modem/nic now, since if it doesn't work when you reinstall, you won't be able to get online to get them.