My PC crashed and after restoring it I've had many problems.

for some reason now when every time I turn on the computer it says the local disk drive is too full to function properly, but when I clear up space on this diskthe amount of space actually goes down!

what should I do? 

My first suggestion.. would be to get a copy of the diagnostic program from the drive's manufacturer.  Run the full set of tests on the drive.  If everything checks out ok, then it'll be time to completely wipe the system and start from scratch.

 Ok so I've actually already wiped itout and started over but for some reason everything is saved to my H: drive, which is my system drive, instead of my C: drive which should be where files save automatically but all my downloads are set to go to the H: drive, which is now like completely full other than 4% of free space that is left. 

What should I do?

I would move everything off of that hard drive to an external drive. 

Then, wipe the internal drive completely.. partitions and all, and then start with a fresh installation.

 I found out that I had an extra partition on my H: drive, but when I deleted it my C: drive became un-formate, I proceded to format it but it stalled, so I was wondering, since I have a Win32 cabinet self extractor, will that re-install windows onto my computer? 

My greates concern is the fact that the CD is from my friend and its for Pro and I have XP, will that harm it?

 You can use any boot CD to start the computer and remove all partitions, create a new one and install XP.

 do you know of any place I can get one cheap or free?

 Any retail version of XP will allow you to delete the partitions.. but if you cannot get one, use the Ubuntu LiveCD.  

 disk space low