I need to know how many times Windows XP Home Edition can be installed before Microsoft start asking questions. Also, is it possible to install it on two computers, from the same disk?

That depends on your license. If you have one disk and 2 licenses then you can install 2 copies on 2 PCs. If you have 1 copy(license) and have 2 Pcs and try to install the same copy - then its not allowed. You have to ensure its installed only on one system - this is why the Product Activation has come in to play

Ok thanks. My family's PC has XP as it came installed on the machine but they never got a disc with it for some reason unknown to us all (can't remeber now as it was a couple of years ago). I have XP on my machine as I bought a copy (disc) from a retailer. Can they use my disc to install XP on their machine again if they re-format the PC first? (which is what they're wanting to do, but they don't want to have to buy another copy of XP for £70 approx.)

It will require them to activate, and will (should) fail to do so. They need to either find the recovery media for their PC, ask the OEM/system builder for the original recovery media, or buy a retail copy of XP.

You could use the copy of your CD to isntall on there computer, then when it asks for the CD Key tell them to type the one on the side of there computer and not your cd key.