Your choices are to either be grateful that you don't have to copy them all back again, or to Re-Install again using the Full or Destructive Install.
I think Windows.old folder being created only came in from Vista upwards, and the OP is on XP. However, if that was the case, a full reinstall is not necessary to delete Windows.old files, running Disk Cleanup would remove it easily for you.
Back to the OP's problem, it does sound like you may have installed Windows twice. You should have, as you say, pressed D to delete the partition and for it to be formatted clean. I think, on XP, you will just have to do a clean install, making sure that all partitions are deleted. I think it should say C: Unallocated Space when it is ready.