Is the version of XP on the hard drive you removed and are now using as an external drive an OEM version? If it is an OEM version the it probably will not work on another laptop. When booting the laptop have you selected the USB drive as the first boot device? I'm not entirely sure that what you are trying to do is possible.
Just thought of something else. Do you have to be able to boot to XP from the external drive or are you just experimenting with it? What OS is on the other laptop?