Does the default setting for XP back up all files on a disk?

What are you asking about?  Windows XP? (if Windows XP, what in Windows XP?)  WinRescue XP? (if WinRescue XP, the answer is no).

OK, I guess you are talking about WinRescue XP.  No, the default settings only backup the registry and certain other settings.  That is WinRescue's strength.  WinRescue should be used to backup the registry and files that you consider important.  Other backup programs do good at backing everything up.