First thing to make sure is does the computer support booting from a USB device in the BIOS, if it doesn't it isn't going to work no matter what you do, although you may still be able to flash your BIOS to a newer version. However Flash your computers BIOS with EXTREME CAUTION... if it goes wrong, or if you try flashing with an incompatible BIOS you will likely end up with a very dead computer.
Even if your computer does support booting from USB then the official MS line is you can not run XP from a USB drive, this is due to the windows instal bootup sequence not loading the USB mass storage drivers early enough. however there are instructions at link below on how to work round this, this is not for the faint hearted/non techie types, and probably also goes against loads of the windows license conditions as it requires burning a modified XP install CD.
http://www.ngine.de/index.jsp?pageid=417