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For more on marking an answer as the "Best Answer", please visit our FAQ.There are different version of Office XP depending if you are a large enterprise company, a single person buying the software box from a shop, a software developer and so on.
The CODE is the same, but how you install it can differ slightly.
For many of the versions you need to enter a long key (20 or so letters and numbers) and without that it will not work.
But of course these 20 letter codes get put on the internet and so people can "borrow" them to install a copied version of Office XP (or any other software).
Microsoft have started to check for "genuine" software before you can download updates (I am not sure what they actually check) but of course if you do not try to download any updates you can use Office XP with no problem.
End of the technical issue, on my next append I will discuss the moral issue.
What about the moral issue of using copied software.
Well it is thought that a high percentage of the PC software used round the world is not valid, in some countries as high as 40 or 50 percent.
And it is not always individuals. In the past I have known small companies who bought a single version of MS Office and installed it on about 10 PCs.
Now Microsoft and other companies know this, and do a lot to try to reduce software theft, but it is very difficult and you could find yourself spending a lot of money to fix the problem for very little return.
It could be argued that your friend who has this dodgy Office software would be unlikely to pay 200 or so pounds for a genuine copy, but by using MS Office now Microsoft are gaining a potential future customer (a sort of loss leader).
I am not condoning it, but it could be argued that Microsoft have got big by people copying Windows and Office software in the past and giving it to friends, and that gave them a huge user base.
Some companies are happy to give away their software to get a huge user base. Products like Zone Alarm firewall was free for many years, and they built up a huge user base. Now they are selling the software and a lot of people are buying it who used it for free earlier.
The other problem is cost. Microsoft charge a huge amount for Office (300 pounds) whereas some Office suites are free.
If Microsoft reduced the cost for home users (or produced a home user version for say 80 pounds) they make find they get less software theft.
But overall you are unlikely to ever get rid of software theft and it is something the industry probably has to accept.