Instead of booting Windows XP from a USB drive, it's possible instead to boot something else called the "Windows Pre-boot Environment" (Windows PE) from USB. Some commercial tools in the past have been sold with a bundled XP version of Windows PE, but you can build your own using a publicly available tool. This requires you have the content of a Window XP installation disk available on a CD or your harddrive.
Bart's Preinstalled Environment (BartPE) bootable live windows CD/DVD:
This makes an ISO image of a Windows PE, but there are some tools which can take the ISO image and make a bootable USB drive from it. UNetbootin might work, but I don't remember if I used this tool or another for making my own Windows PE bootable USB stick.
Windows PE based on XP might not be what you want, however.