Which Targa Traveller model are you using?
ext3 = they probably had Linux on there
Before you format anything you should probably backup your important data (documents, e-mails, address book, pictures, videos, etc.) to flash drive, CD/DVD, etc.
Does your friend have a recovery CD or DVD? If not, that means the recovery partitions were the only copies of the OS (XP or Vista or whatever it was) that they had. Normally if they wanted to restore to factory settings, they'd press a certain key sequence in BIOS and the system would use the recovery partition to restore the computer to the way it was when they bought it (of course all new programs and data added since then would be gone). Anyway if your recovery partition is gone, sometimes you can buy recovery media (DVD or CD) from the manufacturer for your model for a small fee.
I think 20GB is a bit small for XP if you plan to install programs and/or games to run in the future, or you plan to download stuff. If you're doing very light computing (e-mail, web surfing) and not much else, 20GB might be OK.
I'm not very familiar with everest, so can't give you advice there. Other forum members know a lot more about it, so stay tuned.
As for finding drivers for the laptop, go here
On the left, pick your model, then click on the downloads tab to the right. If there are no XP drivers, you can sometimes download the Vista drivers, extract them with 7-zip, and look at the inf or readme or txt files and find out more about the driver. It may turn out the driver also works with XP, but if not, you can google for an XP version once you know more about the device.