The XP2 firewall is ok
a Proper firewall should be able to monitor/block outgoing traffic aswell as incoming - XP internall firewall can't monitor outgoing traffic. The reason why you need to monitor outgoing traffic is because spyware, worms, trajons and other maliciouse software can send out personal information when you connect to the net. Traditionaly the threats was coming from the outside your pc not from inside.
For example will your firewall be able to catch the following? : If program A access port X and a maliciouse program B also access port X - most firewalls won't know the difference.
Zone Alarm is a very goog personal firewall that monitors and blocks incoming and outgoing traffic.
Hardware firewalls are good for packet sniffing and port bocking but are usually not very customisable and clever.