I heard that if you posse an illegal copy of win xp then you will not be able to update it
Yes you can update as long as your cd-key is not on the forbidden list. If you do have a legit copy with a banned key you can take it back to store for one with a different key. If you do have an illegal copy or don't want to bother retuning the banned copy you have you can use a windows cd-key generator and pump out some cd-keys of your own. Then use a program to change you cd-key or use regedit and do it by hand. Microsoft has no idea what cd-keys are legit and witch ones are generated.