Personally, if is was me....
I would buy a decent sized HDD (size denotes how much you use your PC and what you use it for. I have a 60gb main disk and an 80gb secondary disk - 140gb total - as I rip all my CD's onto the PC and use it to play all my music. I also store quite a few vids on here, and a fair chunk of porn if I am honest lol), and install it as a second drive - no OS on it, just storage only - shows up in MY COMPUTER as a storage device and everything on it is easily accessible.
Then I would transfer everything I want to keep over to it. Format the main drive, completely wipe it, and install XP on it. 2000 is fine, as XP is just a fanicer verison of 2000 anyway, but in the future, 2000 will eventually become obselete like 98, and XP will probably carry on a tad longer. That said, with the advent of 64bit systems, both 2000 and XP will probably last as long as each other while 64-bit takes over the world lol....
But I would stick a second HDD in there to use as storage, and also as backup. That way, if something should happen to your main disk - you get a bad virus and it fucks the OS and you have to reformat for example - you won't loose everything as it will be saved on the secondary disk

Thats how I run mine as do many others.
As far as getting a cheap disk off ebay - I wouldn't risk it to be honest. Nowadays you can get a 120gb disk BRAND NEW off Ebuyer for less than £50! And that'll have warrenty. YOu run the risk of buying one from ebay that the guy is telling you it's brand new and works fine, you get it, turns out the be second hand, has bad sectors on it and you're screwed.... Buy one from EBuyer or Dabs etc : anything goes wrong - you send it back!!!
But in answer to your Q : yes, thats what I would do. Fresh install is always better than upgrade yes.
The disc I am sending you is capable of installing a full, new copy of 2000 Pro on your machine, tho to do it you will have to do two things. 1, you will need to make "bootdisks" with floppy disks! (you need 4 blank floppy disc and obviously a floppy drive in the machine. Secondly you will need to format your disk manually BEFORE loading up the bootdisks.
If you decide to do this route, post in here as someone will probably be able to tell you better than I can how to format your disk (as I can't remember off the top of my head

) and I can post up the instructions Gracie sent me for the 2k Pro install