Wiping the disk is only good to remove stuff you would consider incriminating, or at least private. It doesn't make the disk better for installing a new operating system. When you delete a file or even reformat the entire disk, the actual information is all still there: the "index" that has the filenames and where to find them is cleared out. WIping, which really erases all the data, is a good idea before you discard or give away a computer or disk drive. Otherwise your stash of amputee pirate granny pron - and enough information to get into your bank account - could come back.
Try the recovery disk first. It should be able to do a full restore of the system as when the thing was bought new. Make sure you have the sticker with the activation code though: you will need it or else you'll be buying a new XP package (or Win7?) or learning Linux.
If it looks to be able to do a full install (maybe you can call the computer manufacturer to confirm this) then reformat the C: drive to clear out any crap that an install "on top of" your existing system might leave.
The "volume" stuff is interesting. I have never seen this but I have never owned an OEM computer, always built my own. Many OEM systems have a secret hidden partition on the disk drive with the Windows installation files, the recovery CD just accesses these to do an actual recovery - that's an easyish way to eliminate use of the CD on another computer. This may relate to having to unmount a volume although Windows doesn't usually let you see that kind of stuff. You can use fdisk or any other partition program to see what partitions are on the disk. Don't mess with them though if you want to do the restore! If you want to install from a new Windows disk or use Linux, remove all partitions and repartition the way you need to. Windows likes one full disk partition, Linux will want at least 2 but creates them during its installation for you.
