Portable Windows XP with USB drive

Ngine.de - How to install and run a FULL Windows XP from a USB drive

We will dump the contents of your original Windows XP CD , extract a few files from the Image using ISO modification software, edit the files, and put the modified versions back on the ISO. The resulting ISO image is burnt back onto a CD media, and can then directly be used to install Windows on your USB drive.

SolutionBase: Boot Windows XP from a USB flash drive

Another utility that you are going to need is Bart's Preinstalled Environment Bootable Live Windows CD / DVD, or BartPE for short. You can download this utility for free from the BartPE Web site.