I'm not familiar with the Compaq "Recovery CD." Some Recovery CDs also have
an option for "Repair Windows XP," rather than just the one option to
Restore the state of the system as shipped. You'll know if that option is
available, if you boot with the CD and see it. If you only have the one
option for recovery, yes, you'll lose all of your data files. But, you can
backup your data files to removable media, and then restore them after
you've used the Recovery CD. I opted to buy a real retail Windows XP
Upgrade CD, wiped my Compaq hard drive clean, and installed from that CD
(using an old Windows 98 CD as proof of eligibility for the upgrade,
swapping the CDs and giving the path to the old 98 CD, then swapping back to
the Windows XP Upgrade CD after proof of prior version was accepted) The
reason for this is that with a retail Windows XP Upgrade install, if you run
into the sort of problems that you're having, you can boot with the Windows
Upgrade CD and do a "Repair Install," which retains your data files,
programs etc, and repairs Windows XP. The Windows XP Upgrade CD is priced
at about $90. But it's well worth it, because of the ability to do a Repair
Install. In the almost two years that I've been using Windows XP, I've had
to do three Repair Installs, which saved having to do hour upon hour of
reinstalling and configuring software/hardware and restoring data backups.
BTW, surprisingly, the retail Windows XP CD had drivers for all of the
Compaq proprietary hardware, and even had drivers for my USB ZIP drive,
which many OEM versions of Windows XP don't have. Boy was I surprised when
I plugged my USB ZIP drive into a Dell system, which had a Dell OEM version
of Windows XP, which didn't include ZIP drive drivers. I had to download
and install Iomegaware (ugh), from a dialup connection just to get the drive
to work.