Yes it does but with some exceptions. With the Backup Utility open click on Tools, Options. Choose the Exclude Files tab and you will see certain file types that are not normally included in the backup process. Some you don't want anyway like the pagefile.sys but others you might want to include. Once you've sorted that out go back to the Backup tab and put a tick in the box against the C: drive. That will then backup all the files on the entire disk. Even then I don't think it will back up the Registry. To do this I think you need to run Regedit, do the backup from there and then run the utility which will back up your backup so to speak.
Although the Microsoft Backup Utility is quite good it isn't designed for XPHome and I certainly wouldn't rely on it as your only backup source. If you are looking for something that takes a complete replica of the hard disk so that you can restore it in it's entirety you need to look for something like Ghost or Drive Image.
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Well, if forty-eight million, two hundred thousand, seven hundred and one people died I'd be Queen.
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