Here's the method i used. For obvious reasons, your bios will have to support booting from a flashdrive(USB-HDD in most cases) and the hdd(not flashdrive, keep this distinction in mind) you will be prepping the flashdrive from has to have at least 2gbs free space. I recommend using a 2gb flash drive. Also, this method will format ur flash drive, so don't keep anything on there that you really need.
download these files:
bootsect.zip
http://www.2shared.com/file/2585881/5ad9ef68/bootsect.html
usb_prep8.zip
http://www.2shared.com/file/2581432/a65c092a/usb_prep8.html
PeToUsb
http://www.2shared.com/file/2581436/a131cd33/PeToUSB_3007.html
*extract usb_prep8.zip to your hdd, and extract PeToUSB files to the same folder which contains usb_prep8's files.
*copy winxp install disk's contents to hdd, say to c:\winxp
*Run usb_prep8.cmd(from the files you extracted). NB!!! never close this program until you done with the whole procedure!
*after entering some keystrokes, PeToUSB pops up. It should pick up ur flash drive(keep in mind which drives it picks up as,eg my case e: ). Leave settings as is and click "start". Once PeToUSB is done, close it.
*Extract bootsect.zip to some folder, say c:\bootsect\. Open cmd (start->run->type "cmd" then enter). Since my bootsect folder was c:\bootsect, i type "cd\bootsect" in cmd. Then type "bootsect /nt52 e:", e: being ur flashdrive's path.
*go back to ur usb_prep8 window. Press "1" then enter. A window pops up, browse to the folder where you dumped your xp install disk on your hdd and click ok.
*Press "2". Choose an unsused drive letter. If T is unused, leave as is.
*Press "3". Enter your flashdrive's path, without ":".
*Finally, press "4". This start the whole copying process and turns your flashdrive into a xp installer!

Btw If any other user input is need during this copying process, select "ok" or "yes".
Then it's up to you to set ur bios(if F8 isn't an option for a bootmenu) to select booting from your flash(USB-HDD in all cases, but i stand to be corrected if not). For ease of use, have only the hdd you want xp installed to connected and all others disconnected during installation.
Just for interests sake, installing is faster(faster flash the better) than cd. Strangely enuff, installing was faster on my 2400+Athlon XP than my buddy's 3500+ system, 15mins to his 25! Seems my system's not
that crap
EDIT: For older mobos, the boot menu might be written to the flashdrive instead of your hdd resulting in you not being able to load windows without the flashdrive inserted. In this case, do the following in windows:
*in the root of your windows hdd, make a file called boot.ini(if it's there, edit)
*copy and paste this into that file and save(if boot.ini wasn't there):
[Boot Loader]
timeout=2
Default=multi(0)disk(0)rdisk(0)partition(1)\WINDOWS
[Operating Systems]
multi(0)disk(0)rdisk(0)partition(1)\WINDOWS="Windows" /noexecute=optin /fastdetect
*copy and paste this into that file and save(if boot.ini was there):
multi(0)disk(0)rdisk(0)partition(1)\WINDOWS="Windows" /noexecute=optin /fastdetect
in any new line after "[Operating Systems]"
*to test if it works(fluffing it up might result in headaches), click start->run->type "msconfig" and enter
*choose BOOT.INI tab, and click "check all boot paths". If it returns as OK, your job is done