Windows can not be run off of a USB drive. You can unstall XP to a USB drive, but during boot Windows flashes (turns off and on) certain parts on a computer to test them. The USB ports are one of them. As soon as the USB ports are turned off, the boot freezes and eventually you get a BSOD.
The best idea is to use a linus installation. I recommend Ubuntu 10.04. A lot of people use it so its easy to get help with it.