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It's activated online, or buy calling Microsoft, and they check your hardware config, and then give you a code, which you then type in to activate it. This is different from registering your copy, or from the secrutiy code on the cd; it's a unique code and you'll only have to activate it in again if you change your system to the extent that it appears like a new computer, in which case, Microsoft promise, you'll still be able to reactivate.
Otherwise your left with an unactivated copy. Activation is the most effective anti-copying measure thus far seen. The code you activate XP with is specific to your hardware configuration not only can you not copy and sell it, but you can't use it on more than one of your own computers, which sucks. It's also sensitive to hard-disk cloning, so you can't get round it that way either.
You can try trawling the internet, but so far, the only legitmate-ish way to have a non-activated copy is to find a beta-version...
Next, copying windows XP is not really a good idea, as it needs to be validated by contacting Microsoft, when it'll give them your details, your PC details and the details of the version you've installed. THough I doubt you'll go to prison, you could get a nasty fine, but most likely your computer will just stop working.