If you have a DVD writer, use DVD+R’s or DVD-R’s as they hold over 6 times the capacity of a CD and this will cut time backing up your content. The main stuff to back up is everything in “My Documents” and your destkop and any other folders you place content into. Note that installed software cannot be easily transferred, unless you do a partition copy.
If you would like to keep your existing OS installation, setup, software, etc. your best option would be to copy the partition to the new hard disk, e.g. using the parted magic boot CD (download link and guide). If you choose this method, [U]do not boot from your existing hard disk with the new hard disk connected[/U], otherwise this will cause problems later when transferring the partition, even using other disk/partition copy software. Instead, make sure the BIOS is configured to boot from CD before installing the new hard disk, insert the Parted Magic CD, boot it and follow the guide. Afterwards, disconnect the original hard disk, boot a Windows XP setup CD, go into the recovery console (when it asks what you would like to do) and type in ‘fixmbr’ to put a master boot record on the new hard disk. Finally reboot and the new hard disk should boot. Hopefully someone else here can give you a simpler process, as I mainly use this process due to Parted Magic being free.
If you have some time to spare, a better option is to install Windows, the drivers and software from scratch on the new hard disk. With this method, disconnect your existing hard disk, connect up the new one and install Windows, drivers, software, etc. Then connect up your old hard disk again, go into the system BIOS and make sure the new hard disk is configured as the first for boot priority. When you’re in the OS, your old hard disk will show up as a different drive letter and you can go into this to copy everything you need to your new hard disk.