Well it seem like it is kind of messed-up already
,, since you have remove the XP from startup menu, you could go ahead and remove the Windows XP installation directory (by Default it will be called Windows, of course win98 does the same thing), what you can't remove is the Program files and other folder....
since the system in operable right now, you should save your file and do a clean install and not worry about these stuff anymore.
cheers