Windows XP does not include any built in dns hosting capibilities. However a quick Google search will provide you with several 3rd party freeware solutions.
Windows XP does run a limited DNS Server when you use ICS - Internet Connection Sharing. It also runs DHCP which gives this machines IP Address as the Default Gateway and DNS Server.
Try, for example, with ICS running on a LAN, to Static IP one of the client computers on the network. If you static that clients dns as well to the ICS gateway machine you will get DNS resolution. If you do not you won't. If you don't static the gateway you won't have a route to the Internet ... so you have to set both dns and gateway to the ICS machines IP Address when you static IP a client on an Windows ICS network.
Really I think this is a sort of stub dns server, kind of like the default DNS Setup on a Redhat or Fedora Linux installation. What would be a Cache Only DNS Server. You can't configure the DNS on the ICS machine it's acting as a forwarder. (It also resolves local computer names on your network, but I believe this is resolved through NetBios Name Service NBNS and is possibly cached as well locally.)
* Then again as previously suggested you could use after-market software to run as a DNS Server on Windows XP.
You are about to answer a thread that has been inactive for more than 6 months. If you still wish to proceed, please ensure that your posting is original and does not duplicate or overlap any prior responses to this thread.