I have Windows XP on my pocket - 2

Booting from the USB flash drive.

Now that you have formatted your USB flash drive and installed the boot files onto it, the next thing that you must do is to configure your PC to allow you to boot from the flash drive. This is all done through the computer's BIOS Setup. I can't give you specific instructions for this part, because every computer is different. I can give you a few pointers though.

You can access your computer's BIOS by pressing a specific key immediately after you turn the PC on. The key varies, but it is usually either [F1], [F2], or [Delete]. Once you are in the BIOS Setup, you should verify that all of your computer's USB options are enabled. This might include things like support for legacy USB devices or support for USB 2.0. If there is a time out setting for USB devices, you should set it to the max to insure that the system doesn't time out while waiting on the USB device to boot.
Next, find the section on boot device priority. Normally, a USB flash drive (which is usually listed as USB-HDD, but may be listed as a removable device) will have a very low boot priority. If the USB flash drive's boot priority is lower than the hard disk (listed as HDD) then the only time the computer would ever boot off of the USB flash drive is if the system were to fail to boot from the hard disk. You must therefore rearrange the boot device priority so that the flash drive has a higher priority than the hard drive.

Now that we have finally made it through all of the prep work, it's time to start setting up Windows. As you have probably already guessed, the process of installing Windows to a flash drive is quite a bit different from your normal, run of the mill installation. There are a couple of reasons for this. 

For starters, a full blown Windows XP deployment takes up over a Gigabyte of hard disk space. When you are installing to a flash drive, disk space is a scarce commodity. Even if you have over a Gigabyte of space on your flash drive, you probably don't want to use it all on Windows. It would be nice to have room to install a few applications. Therefore, you need to trim the excess fat off of Windows.

The other reason why the installation process is so different from the usual Windows installation is because Windows Setup is not designed to install Windows to a flash drive. You therefore have to configure Windows using an alternate method.
The PEBuilder utility that you downloaded earlier can take care of both of these issues. PEBuilder is designed to create a build of Windows XP (or Windows Server 2003) that does not take up as much space as a full blown installation. Once you create this new build, you can copy it to the flash drive. For right now, I will show you how to create a basic Windows build and copy it to the memory stick. Unfortunately, it's rather difficult to install applications once Windows is up and running. Therefore, after I show you how to create a basic Windows build, I will show you how to create a build that includes some applications.

Begin the process by opening PEBuilder. Open your PEBuilder. Simply enter the path to the Windows installation files (the ones from your Windows XP with Service Pack 2 installation CD). Next, verify that the Create ISO Image and the Burn to CD check boxes are not selected and then click the Build button. PEBuilder will now create the new Windows build.

Now, it's time to copy Windows to the flash drive. To do so, you will have to use a special batch file that's included with PEBuilder. Open a Command Prompt window and navigate to c:\pebuilder313\plugin\peinst. Now, insert an empty flash drive into the computer's USB port and then execute the file PEINST.CMD.

Type 1 and press [Enter] and you will be prompted to enter the path to the build that you have created. Enter C:\pebuilder313\BartPE. Now, type 2, press [Enter], and you will be prompted for the target path. Enter the drive letter that Windows has assigned to your USB flash drive. After doing so, the menu is updated. The menu now displays the source path and the destination drive. Type 5 and press [Enter] to install Windows to the flash drive.