There may be a method to reset password without using a Rescue disc. But I would recommend using a Rescue disc is a better & safe way.
I used the following method in the past(2 to 3 times) and was successful.
Download the SystemRescueCD ISO file. Burn the ISO file using Nero or ImgBurn or MagicISO.
http://www.sysresccd.org/Download
Boot to System Rescue CD.
mount the Windows drive RW (mine was RO)
cd to the config dir: cd /mnt/sda1/Windows/System32/config
Backup your sam,security,system,software (just copy them to another directory)
Now run this to list user while in the config directory:
chntpw -l ./sam
And this will run in interactive mode and ask you which user to edit the password.
chntpw -i ./sam
You'll boot to a terminal.
First, mount the partition that Windows is installed in.
# mkdir /mnt/Windows
# ntfs-3g /dev/sda2 /mnt/Windows
Windows XP/Vista should be pretty straight forward. Windows 7 usually has at least two partitions. The first is a hidden system reserved partition, while the second is the actual partition where Windows is installed. Replace /dev/sda2 with the appropriate device on your system. Once mounted, you'll be able to edit the registry hives to reset your password.
# cd /mnt/Windows/Windows/System32/config
# chntpw -u username SAM
I would recommend to reset the password to an empty string rather than assigning a new password in the rescue mode. Make an empty password. Boot Windows XP normally and login without a password and set a password then.
As a safety measure make sure you backup your important data before carrying out this.