1. Click on Start Button
2. Click on Control Panel
3. Double click on 'Regional and Language' Options
4. Click on Languages tab
5. Select the box : Install files for complex script and right-to-left languages. Your System may Re-boot or may ask for Windows Xp CD
6. In the Languages tab , Click on Details button
7. On the Settings tab, See installed services
8. Click on Add button
9. Select Input language as Telugu
10. Click OK
Now, You are set to type Telugu.
You can switch between languages using left Alt + Shift.
Or you can click on the language toolbar that shows up on task bar or somewhere on the screen.
Here is a Telugu keyboard mapping with respective English keys.