Well, for one, if you are going to transfer any files to another computer, you are going to want to get rid of that worm program, or you may reinfect yourself after the format. What worm is being reported?
The windows xp boot format/nuke is fairly effective, just try to have the latest driver files on hand at the time of install, as xp can be kind of finicky sometimes. I find unzipping the drivers and burning them to a cd works great.
The missing HD space could be several things. Do you have a copy of Norton installed on your computer? if so, it has a protected recycle bin feature (which I absolutly hate by the way) that makes it so things you delete don't actually get deleated. If so, i'll look up where it is stored and post how to nuke that if you like.
With your computer being the network master, you could ahve problems if you don't get the settings back they way they were. Check and see if you have the windows xp built in firewall turned on or off, as well as file sharing. After the reinstall, make sure the IPX protocal is also installed, otherwise some games won't work over your network.
If you are going to do a full nuke, you may want to think about upgrading to a bigger hard drive. Some of those 125gb drives are running around $100 right now, then you cna throw whatever drive you are currently using in there as a secondary drive and justr format it.
Any problems, just let me know.