Are you sure you don't have a Dell Recovery partition? After the Dell BIOS splash screen. hit Ctrl F11 and try to boot from the Recovery partition. If not, hit F12 and boot from the Dell Windows XP CD and format the C: drive.
The version that you are trying to install probably doesnt have any SPs and the current version does, so it is reporting a newer version.
You may need to get something like hirens boot cd or ultimate boot cd so you can format the partition and then it should work.
Actually you may be able to uninstall the SPs and it should work.
I recommend using something like a Ubuntu Live CD to boot into an OS (such as Ubuntu), run a partition editor (such as GParted) and format the partition. Then run the Dell OS Reinstallation CD and it should work fine.