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Sure you can, and it's legal as long as PC#1 is not a name brand that came with an OEM preload and a restore disk. You can use a cloning utility to clone the drive from PC#1 to the new drive, then do a repair reinstall of XP using your legal CD to reset the hardware layer. Legally, you then have to wipe the old hard drive. You can install the old drive as a second drive for storage if you choose.
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