I just bought Win XP Pro from a online retailer and once i get to teh activation screen (after install) the screen says that this Cd key has already been used (?). Now the retailer is saying that I purchases the CD, copied it, and am using the CD key. Is there a way to microsoft to tell me who or even in what state the CD key was used? I need to come back with some proof to this guy that it was not me. Any thoughts?

You got scammed

If you used a charge card give them a call to file a fraud report.

Double-check, triple check that you entered the key correct. Ask your credit card company to cancel the charge and then conduct a fraud investigation immediately. File a report with the Better Business Bureau, Consumer Protection Agency and law enforcement agencies of the state in which the company is located. Then, the company will be a little more helpful with you

Was the product wrapped like new? Any obvious evidence of tampering? Does it have an official Microsoft certificate of authenticity with it. (ie hologram or other)

Yes, CD looks like it is original. Hologram MS on the front of it. I know I entered the right cd key because it asks for it at the begining of the install process first

So there is no way that MS can tell me more about the activated product?