Couple of thoughts:
1) Make sure you're properly licensed for XP - OEM licenses are tied to specific hardware
2) You're almost always better off building one from scratch. Given 1) and that you have to have a retail license and disk, just build a clean VM from scratch.
If you want to still try converting (which will result in a bloated, buggy, vm), use the standalone VMware Converter, not the remote one.