How skinnable is XP? Very. Why? Because unlike Windows 95/98/ME, XP isn't trapped with that evil 128K GDI limit which absolutely was poison to skinning.
But there is no one particular solution to customizing XP. There are a host of first party and third party ways of doing it.
Breaking XP into its parts you have:
1) The GUI
2) The Start bar
3) The logon screen
4) The desktop
5) The icons
So what does XP bring to the table in these areas?
With the GUI, you have 3 different skin types you can now use (all of which require a third party program to utilize). You've got .msstyles skins. The good thing about msstyles is that they cost nothing to use and they're fairly fast. The bad news is that they aren't very flexible. Can't move the buttons, very limited in the size of borders, etc. The second format is UIS2 which is what 99% of WindowBlinds skins are made with (and a host of third party programs have licensed it as well - Download accelerator, ACDSEE, ICQPlus, etc.). UIS2 is very powerful, you can do animations, move buttons anywhere (even to the bottom left hand corner of a window if you wanted). Every border can be any size you want. The downside is performance and reliability. That kind of flexibility means that skin authors can go hog wild and many do and the result is that many skins are slower than they should be and there is also the issue that windows are actuallys lightly larger than they visually appear because of the independent border sizes. For most people, these are minor and the most popular skins aren't crazy and newer skins are quite fast (as fast as an msstyle).
The third skin type for XP is called UIS1 and it will become widely available with WindowBlinds 3.1. During the beta of XP (last year), there was a lot of discussion over whether msstyles was partially based off of UIS1 because they are so similar. The problem with the original UIS1 was that it couldn't handle any transparancies so most skin authors didn't use it. The new UIS1 coming out with WB 3.1 allows for transparancies. It's basically the same as an msstyle except you can move the buttons anywhere you want. The advantage of UIS1 though isn't in its flexibility but in its performance - it's twice as fast as an msstyle (literally). And of course UIS1/UIS2 can work on any version of Windows.
Anyway, you have 3 different skin formats on XP to choose from and they all work pretty well.
Then you have the logons. There is a program called LogonUI that makes it so that you can change your start up. There are other logon programs in the making as well that will let you do that in different ways.
You then have the icons. Windows XP is the first Windows OS to support alpha blending in the icons which is a big deal. It means icons can be blended into the background. it's hard to go back to a standard type of icon after seeing that.
Then you have the Start bar. There are quite a few programs that can enhance or replace the XP Start bar. There's Hoverdesk (www.hoverdesk.net), NeXTStart (www.winstep.net) and now there's ObjectBar (www.stardock.com/products/objectbar).
And last there's the desktop itself. There are basically two programs that handle that fully (other than Litestep but I haven't tried it on XP). There's Talisman (don't have the URL handy) which is a full blown environment and then there's DesktopX (www.desktopx.net) that uses the new alpha blending features in XP to a huge extent (full animated alpha blended objects on the desktop on the fly).