First you've got to decide how to handle the installed programs. Say, you've got a student edition of MS Office, it might not be legal to transfer it. But all of that is up to you, of course. Uninstall all software not to be transferred from Control Panel>Add Remove.
Then delete all files that are obviously personal, like everything in My Documents, My Music, My shared files (Kazaa), and of course Word documents, spreadsheets, financial data, pictures, music etc etc in other folders. The idea is that you know what's on your machine, of course, and where you keep it.
Then go to into your browser and (in IE language) clear Temporary Internet Files and history. IF IE 6, although clear cookies.
Also delete (in Outlook Express language) all your mail folders (except the standard ones, like Inbox and Sent Items). Delete every mail in there, and from Deleted items also. Then File>Compact>All folders. In Config Panel delete all users (if you have any), leaving only the default user.
Download a program called MOVEONBOOT, and use that to delete ALL index.dat files you can find.
Manually delete all cookies (in c:\windows\cookies) and everything in c:\windows\temp, c:\temp, c:\tmp (if present). Delete *.pwl in c:\windows. Delete *.log in every folder.
Clear start menu and desktop. Clear Start>Recent list.
Delete dial-up account information.
Delete everything from the Recycle Bin.
Your system should be pretty empty now. Critically look in every folder with Explorer. Don't delete drivers. Don't delete things in the Windows-folder except the things mentioned. Things to note: a program like MS Word can put your .dot-files in Program Files, games can put all kinds of data in their folders in Program Files. So better uninstall games. Don't know about ICQ.
Your system should still be emptier now. Then repeat the above procedure until you're pretty sure there's nothing left on the machine that didn't come from Microsoft or from other vendors whose software you didn't delete (like Acrobat Reader, Macromedia Flash, Antivirus etc). If you don't have excessive amounts of software, it should be far less than 1 Gb.
When in doubt: delete to the recycle bin, reboot and try. Only then delete permanently. When in serious doubt: ask here.
To top it off: scandisk and full defrag compacting everything.
This is an absolutely normal thing to do. It shouldn't raise any questions.