No, but my question is. What state does the laptop have to be in to run this CD? i.e. XP installed or just BIOS to run the CD.
It's up to you whether or not you remove XP. The only considerations are that you need have enough disk space to install PCLinuxOS to, so if you leave XP on there you may need to reduce the size of the XP partition in order to make space. The PCLinuxOS installer will offer you that option (and set up the bootloader so that you can boot either XP or PCLinuxOS) or you can just wipe XP and let PCLinuxOS use the whole disk.