Doing a fresh install would be best. Visit http://www.musicxp.net for installation and "tweak" settings. As far as registration goes you'll just have to phone them again which I haven't had to do but hear its pretty painless.
And as far as having a modem or internet on the system should be no problem. I myself have the internet and network running on my audio system and have had no problems with Nuendo and XP.
Getting the updates isn't all that important depending on the use of the computer but is recommended. You won't need all the updates, just read thru them and you'll be able to make judgement if its something you need or not. If you have another computer with internet connection you can download them elsewhere and install them from a cd or another drive. Explanation of how to do that is on the Windows update site.
good luck
-k
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"When I look at the smiles on all the children's faces,,...I just know they're about to jab me with something." -Homer J. Simpson
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