Formatting your hard drive (deleting everything, including the OS and all your programs) is the "nuclear solution" to any performance issue. It is usually reserved for the occasion where no other solution will work.
There would be no point, and no benefit, to installing XP before Windows 7.
I would think you could install Windows 7 from an external hard drive. I haven't done it. So no help from me on that!
Perhaps you want to address your "slowness" issues in a separate thread and see if you can fix it without nuking the system.