Yes because the hardware firewall will only stop incoming traffic but will (generally) allow outbound traffic. The software firewall will prevent unauthorised outbound traffic in this case.
edit: d'oh - sorry, I just re-read your post and realised you've got the Windows firewall running, which will stop outbound traffic. I thought you only had a hardware firewall. As long as you're running XP SP2, as I believe it was this that updated the Windows firewall to monitor outbound traffic as well as inbound, then you should be OK.
If you do decide to change it, however, then only have one firewall running at a time.