Is there not a suitable third option? As you have an OEM disk, why not
install a new, clean drive, temporarily disconnect your Win2K drive, carry
out a fresh OEM install onto the new drive then re-connect the old Win2K
disk. You can then choose your preferred boot disk depending on what you
are doing as well as having a fresh disk to work with, reslove the XP issues
and not risk losing the current Win2K install.
I understand a non-OEM upgrade is your preferred option but it's frought
with risk and you may end up having to do a fresh install anyway. My
suggestion at least offers an extra level of security, I'm a great believer
in leaving what you have intact and only remove it when you know that what
replaces it is suitable.
As for data encryption etc (ie. the differences between XP Pro and Home
versions) there are plenty of free options to cover these available online.
