Windows XP does support SATA drives and I have installed it many times onto SATA drives. What WIN XP does not support, without additional drivers at boot, is AHCI or RAID. Even WIN7 does not have native AHCI or RAID support.
Pramod0082, ensure that in your bios that your SATA controller is not set to AHCI and instead is set to something like IDE so that your installation will complete. Remember though that this may slow down system performance from a lack of AHCI support. If you need the AHCI support then yes emerald is correct in that you will have to slipstream it into a boot disk. I have heard of doing it with USB but have not had success. You can try different methods including burning them to a new CD however the most effective way is to install and use a floppy, assuming your MOBO has the connector.