I think it might not work as When XP boots up normally, it resets the USB bus and redetects all of the hardware. Unfortunately when this happens and your boot device is the USB device, your USB device becomes inaccessible and XP blue screens before it loads.

But still I am not sure

I think it might not work as When XP boots up normally, it resets the USB bus and re-detects all of the hardware. Unfortunately when this happens and your boot device is the USB device, your USB device becomes inaccessible and XP blue screens before it loads.

But still I am not sure, besides when you choose that particular disk to install Windows would probably put out an error message.

Having said that some sites offer some hard tricks like these over here http://www.ehow.com/how_4853554_install-xp-external-hard-drive.html

Other Solution which comes to my mind are

• installing your hard-disk as an external hard-disk in some other computer
• Installing Windows to your Laptop using USB pendrive rather than a CD