It sounds like the problem stems from the 2 things:
1.) the media you installed from was not legit
2.) Windows gives you notices that it needs to be activated, which you ignored.
You won't be able to fix that without reinstalling or using a crack. The phone activation will work but you need to change product key. There is an article of Microsoft support site on how to do that actaully.
However, it's a problem with your XP Media... are you 100% sure that is a legit copy of windows? Where did you get it from?
I currently have this problem with a Windows 7 machine I bought from eBay. I can't activate it and I have a black desktop (sorta annoying) and two or three different things that pop up periodically to yell at me (incredibly annoyingly, especially the one that makes an obnoxious error noise). This situation is definitely my fault - there are a few possibilities for where I went wrong:
1) maybe the guy I bought it from was not legit - I asked him lots of questions before going through with the purchase but that's about as much as I could (or would be willing to) do,
2) Using what I believed to be the correct, legal process, I created an install disk and looked up the key for my existing OEM install, which I used to reinstall a fresh instance without any of the HP nonsense the machine came with,
3) For a couple days I had an install using the same key on a VM to test something with IE9.
Any one of those things could be the problem and they were decisions I made, Microsoft didn't force or manipulate me. But here's the thing, at the end of the day what I have is a really obnoxious machine and if I had just bought a Mac (off of eBay even!) or installed Linux instead, I wouldn't have to deal with any of this. You're right that the Microsoft experience isn't so bad, if you follow the rules you're probably going to have a bare minimum of hassle, but it is still so much worse than the competition on this front.
> You won't be able to fix that without reinstalling or using a crack.
This is the point that gets under my skin. You can't ask a commpany to actively maintain staff to support a 10 years old OS. But then, it shouldn't put DRM or activation processes that have fail cases needing active help for products that have long life spans (I know, planned obsolescence and etc.., but still).
This is a problem I don't have with other OSes, and it just looks bad in comparison.
To answer your points,
1) the license I am trying to use was acquired a long long time ago in a previous iteration of my company. It seems it would be a big hassle to retrieve who/how it was bought... That's bad resource management.
But now I can't imagine it was stolen or frauded in any way.
2) Windows XP on a virtual machine was a choice among others (say win 7 with a separate physical machine for e.g.), and I needed time to try the install, knowing that activating an install that would be trashed afterwards would not be good. Now, this situation might be an answer, but otherwise it was a quite usable environment.
You won't be able to fix that without reinstalling or using a crack. The phone activation will work but you need to change product key. There is an article of Microsoft support site on how to do that actaully.
However, it's a problem with your XP Media... are you 100% sure that is a legit copy of windows? Where did you get it from?