From the Fusion Help:
Deleting a Virtual Machine
If you want to delete a virtual machine, you delete its files using the Finder.
To delete a virtual machine:
1) Power off the virtual machine.
2) Browse to the Virtual Machines folder (usually in your <user>/Documents folder) and select the machine you want to delete.
3) Move the virtual machine package file to the trash.
EDIT: Now, if you don't have a virtual installation, but rather a native install on a Windows partition, you'll need to wipe your partition with Disk Utility, then reinstall XP on the partition.