> 2) If so, must I purchase a FULL version or will a less expensive
> version work (e.g. UPGRADE version)?
>
Buy the OEM version online, unless you're sure that
you'll want a Full Version for years to come that can be
installed on later PCs. OEM ("orig. equip. manufacturer")
is the version that comes pre-installed on retail PCs.
It's basically a full version CD but without a full license.
Microsoft's position is that OEM versions are legal but are
tied to a single machine and tech. support is only provided
by the OEM. In this case the OEM is you.
I don't know about Vista prices, but OEM XP is
about $100, quite a bit cheaper than Full Version XP.