Can't install WIn XP SP3 from USB

I've got USB with DOS, Ubuntu on Host, two FAT32 partitions, one is
marked as bootable.
Bootable usb is created according to this manual:
http://www.meta.net.nz/~daniel/blog/...k-under-linux/

I'm using qemu to load from USB, copy system files:
mkfs.msdos /dev/sda1
qemu -boot a -fda balder10.img -hda /dev/sda
A:\ sys c:
A:\ xcopy /E /N a: c:

Then, I'm able to load DOS from HDD using GRUB menu - smartdrv -
i386/winnt.exe from USB flashdrive.
The installation copies files to HDD, really slow though, I guess it
uses USB 1.1 drivers - around 1.5 hours.
Anyway, when files are copied, the installations suggests to restart.
However, after restart I see GRUB menu again and choosing booting
from /dev/sda1 shows a cursor and then nothing happens.

I guess, the windows had to override the bootloader but didn't, but
anyway I don't know how to fix this.
Please, help!