Booting XP From A USB Drive, Step By Step
First, if you haven't already, grab a free copy of BartPE. You'll find all the information you need on getting and using this tool in "A Must-Have Repair And Recovery Tool." and at Bart's site.

Next, you need new versions of two files from Microsoft: "setupldr.bin" and "ramdisk.sys". These new files are part of the Windows Server 2003 SP1 pack, which you can download from Microsoft no matter what operating system you're running. So, if you're not running Server 2003, it's not a problem.

Here's what to do: Start with the page called "How to obtain the latest service pack for Windows Server 2003" and follow the appropriate links under the subheading "To obtain Windows Server 2003 SP1 from the Microsoft Download Center." (As I write this, the standard 32-bit version is here, and you're free to try that link. But the name or location of the file may change, so going through the "How to obtain the latest service pack for Windows Server 2003" page is the safest, surest route. When you get to the download page, click the "Download" button to save the complete SP1 file to your PC. (It's a large file; 329-Mbytes.)

The SP1 File is an executable that will try to self-extract and install if you run it. If you're currently using Windows Server 2003 and wish to fully install SP1, it's fine to do just that -- click on the file and run it. But if you're using any other operating system, use the "-x" (for "extract") switch instead. This will pull all the files from SP1, but won't try to install them.

Extracting The Files You Need
Here's how, using my system as an example:

Screen One shows the executable SP1 file -- currently named "WindowsServer2003-KB889101-SP1-x86-ENU.exe" although the name could be different when you download it -- in an otherwise-empty folder I created as a temporary workspace.

Screen One The Windows Server 2003 SP1 file is a self-extracting archive from which you can pull just the files you need, without having to install everything else. (click image for larger view)

I opened a command window in that folder, and then ran the SP1 executable file with the "-x" switch: In other words, I entered the command "WindowsServer2003-KB889101-SP1-x86-ENU.exe -x" (without the quotes) as shown in Screen Two.

Screen Two The -x switch unpacks the SP1 files without invoking the installer. (click image for larger view)

Screen Three shows the extraction process beginning; asking for a destination for the unpacked files. You can accept the default location (that's what I did), or specify another.

Screen Three The default unpack destination will usually work, but you can specify any convenient spot. (click image for larger view)

Once you accept or specify a destination, the actual unpacking of the files then begins, as shown in Screen Four.

Screen Four Unpacking the files takes several minutes, but requires no further user input. (click image for larger view)

Screen Five shows both the final "extraction complete" message, and the automatically-created "i386" folder that contains all the newly extracted SP1 files.

Screen Five By default, all the newly unpacked files are placed within an automatically created "i386" subfolder. (click image for larger view)