To turn safe mode on, yes, just change it to on in php.ini.
You do not have to change any of the other values you asked about.
They simply set perimeters for safe_mode and should work fine as is. If you encounter a problem with safe-mode on, you can set them to exclude directories that need safe-mode off.
You probably shouldn't mess with the php5.ini. I haven't seen an instance yet where I needed to do so and not even sure what it's for. PHP.ini is your main PHP configuration file and the one you will make any necessary changes in.
Also, there are two php.ini files. The one in the php directory I believe doesn't do anything because it's replaced by the other one in XAMPP. You can find the one you need in /xampp/apache/bin/php.ini. Just simply search for the safe mode line and change to on.
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