However, I heard a rumour that you can only do this so many times before Windows has enough of letting you reactivate.
It's not a rumour, it's actually true ... I have the original 2001 retail XP Pro and it's run out of activation counts. It now has to be activated manually by calling Microsoft.
I have learnt a valuable lesson, this time I activated XP I imaged my drive so I can restore back without calling Microsoft.