Just be careful with the program you use to do it
I know this is "solved" and aging, but I wanted to add my 2 cents. Especially since this showed up on my Google search results and I wasn't happy with the answer.
As long as you have system restore enabled, there is no real danger in letting a program defrag your registry hives.
Just a note on how defraggler "builds a new copy" of the registry. They probably mean to say that they make a copy of the current registry hives as contiguous non-fragmented files and then mark them for being renamed on reboot so as to replace the current, fragmented version of the registry hives.
I wouldn't recommend defraggler.
However, I have seen computers that experienced large performance increases due to registry and page file defragmenting.
In those particular cases, the registry hives and page file were highly fragmented because at one point the hard drive had nearly filled to capacity (leaving fragmented pieces of free space) and the page file and registry hives started to take use fragmented pieces of free space as they grew in size. (The page file size wasn't a static size on these PCs)
For Windows XP I would highly recommend this little piece of freeware:
http://technet.microsoft.com/en-us/sysinternals/bb897426.aspx
It has worked well for me for a long time. I have installed it on many of my client's computers.
I haven't had any trouble with a Windows 7 computer slowing down due to fragmentation yet (the built-in scheduled defrag tool helps). However, this looks like a good piece of compatible (free) software (although please note that I haven't tried it yet):
http://ultradefrag.sourceforge.net/
Thanks!
-Myk