Reasons like this is why I chose to just buy a fresh install rather than upgrade.
Do you have the XP label that often gets stuck to the PC case when they install the OS? That has the CD key number on it as well?
The problem with borrowing your friend's key is if the install will match it to the key logged in your OS's registry. If they don't match, it probably won't work, but I'm guessing here.
If you are upgrading, odds are most everything will "migrate" over to the new OS. You back up files as a precaution.
The reason why I bought the upgrade is because I thought I was getting a deal 40 dollars. I lost my copy of xp so I would have to borrow my friends vista. You might be right about the key logged in my OS registry. I might have to learn linux if this doesnt work hahah.