Using Old copy of Windows XP on new machine

As a Christmas present, I am building a computer to replace my parents EMachine for them. I built it at my house and used my copy of windows xp to format. I had my sister read the xp code off of my parents computer and I used it. Everything seemed to work. I am now being asked to validate windows. This computer will replace their old computer. The old one will trashed. I have a few questions.

1) Is this legal?
2) Is there a drawback to this?
3) If I validate the computer that I am building, will this cause my parents computer to have any problems before I deliver it next week.
4) Will using my cd and another number cause problems?

Thanks