How to boot XP from a USB Drive

here is an illustrated version of what you are after from the techrepublic
http://articles.techrepublic.com.com/5100-10878_11-6160062.html

I would ask you WHY?  USB is slower than hard drives.  XP is sensitive (including activation) to hardware changes, so you can't easily transport it to different hardware.  And there are already many good boot tools in existence.  

User at work brough a Eee PC with a very small HHD (cant remember if it is a 4gb or 8gb SSD) and ive been requested to see if this is a possible option. An external HHD would be too big although those self powered 2.5" laptop HHD's could do but ild have to see if this was acceptable or not - im thinking not.

I had found that second link you mentioned techvagabond and I didnt like that it said that the USB it could only be 2GB max because it had to formatted in Fat 16 and was wondering, considering that the document had been written in 2005 if this was still the case. Does anyone know if you are still limited to 2BG ?

Ive heard you can do this same process on larger external HHD's, they dont also have to be formatted in Fat 16 / 2gb Max do they ?

No, as you have picked up, it should be able to support a more appropriate file system