If the usb drive is large enough, you could try doing a slipstream xpsp2
bootcd format onto the USB drive. Microsoft has all the instrructions u need
for that.

Or installing the disk as a fixed, maybe with ide disks rem'd and using an
xp boot cd to install onto the usb drive.

One guy said an external drive cannot maintain a swapfile.. this is not
true.. whether or not xp on install will allow you to smartdrv or not is a
different question altogether.

Basically If you want a copy of xp on your usb drive, as a backup incase
your xp fails, I'd suggest making a dos/false xp(bootdisk copy, essentially)
bootable partition on the disk (if this is possible with your bios) cpoying
xpinstall files to it and when needed... running winnt.exe to install back
onto the fixed disk from the i386 folder..

Prolly full of holes as an idea, but hey.