Yes, UFT will run with Win XP. If you have version 3.0, you will want to make sure to save sqz files of your projects. When you get your new computer, put version 3.0 on from your original CD, then download the 3.1 (following the instructions). Then put your backup in and do a FIle/OPEN and locate your sqz file. Save AS ... and it should work fine.
To have it work with MSWord, you will have to locate the correct file path, which can be a little tedious, but isn't that difficult.