No. Windows XP home or pro can not format cd-rw disks. Windows XP can burn data and music to a cd-r without a problems due to the fact the cd-r disks are pre-formatted.
Windows xp can not format a cd-rw because windows xp does not support the International Organization Standard (ISO) Image. What is ISO? An ISO image file is a snapshot of the data and layout of a CD, saved in ISO-9660 format. ISO image files are widely used for storing CD content. ISO is a common CD image format for DOS, Windows (Joliet ISO extension), Linux (RockRidge ISO extension), and other operating systems.
In this long, drawn out Microsoft article about CD burning, Microsoft says in a round about way that you will need 3rd party software in order to format a cd-rw They do not do a good job of making that clear. Without formatting a cd-rw disk, you will not be able to write any data to it. So unless you have something like roxio, nero, or some other software for burning cd-rw, you wont be burning cd-rw in windows xp at all.
Microsoft confuses the situation by saying in this article that it supports cd-r and cd-rw disks and how essential burning cd's has become. It makes no mention to needing 3rd party software.
To solve your formatting problems, I have found some free cd burning software. This software comes with many features you would find in cd burning software some would make you pay for. These guys are doing some good work for the free minded people of the cd burning community. Link: www.cdburnerxp.se