XP OEM should still be a version of Home or Professional. OEM just means "Original Equipment Manufacturer", and it's the copy of the OS that came with the computer (from Dell or HP, for example). The only real difference between an OEM version and a retail version are usually some small changes made by the OEM comapny to some of the code. Genenrally, OEM is equivalent to the retail version. It would not be worth the cost to upgrade just to get a retail version instead of OEM. The salesman is either uninformed (and thus, can be ignored), or intentionally trying to up his commission (and, thus, can be ignored). I'm using almost exclusivly OEM versions of XP Pro (mainly because, as a former employee of a OEM, I can buy them MUCH cheaper than retail versions. Our OMN versions, infact, were exactly like retail except for the fancy packaging. We did no custom coding).
Now, there is a difference between Home and Professional. XP Home cannot be a member of a Windows domain, provides much less detail in setting user accounts, and has a few other limitations, mostly dealing with networking and security. If you plan to do much networking, have more than one or two users, or do anything requireing a high degree of security (such as your financial records, for example), I would say the upgrade to XP Professional is worth it.
Finally, as to Office, I'd ask you one question before I could tell you wether or not to update: Does what you have work for you? Unless you're ina business environment were compatibility issues are popping up, if what you have works I wouldn't upgrade just to be on the latest version. Unless there's some functionality or security problem, or some feature you want that's worth the extra bucks, keep 2000. 2000 will still open the XP and 2003 office files, so you aren't really losing much there. 2003 has a few new features, but nothing worth the price tag on a new version of office.
If you do decide to purchase a new Office, try to qualify for the Student and Teacher edition. It has Word, Excel, Powerpoint, and Outlook, and comes with a license for three computer systems. It's also less expensive than the other versions. You do have to show some type of academic status, though.