Winxp boot from external USB HD

Few months’ back, I had my laptop (LT1 - Compaq 2710) not booting up 'Operating System not found'. It removed the HD from the laptop and used it as an external HD for another laptop (LT2 - Toshiba) but the 2nd laptop will not recognize this HD and after running Ultimate Boot CD, I figured out that the HD is dead (or will die soon). I had backed up the data so no problem.

Now I have got another HD for this machine. The new HD is 200GB SATA (for desktop) Maxtor and It comes with Maxtor blaster etc CD's and I have a USB enclosure for this. How do I start using this new HD in the laptop using the USB enclosure? (A. Install Win XP and B. boot for external usb)

I have a win XP cd and I also made a USB bootable win XP with SP2 - (Win XP SP2 -USB) - from this instruction - http://www.ngine.de/index.jsp?pageid=4176
This CD works fine from my 2nd laptop - LT2 but it does not allow me to install XP on external HD (bascially it tries to re-install XP on my existing C drive for LT2). I removed the HD for LT2 and tried to Boot from CD (Win XP SP2 -USB) with external HD connected with USB - It started the boot process, but could not recognize HD (may be because its 200GB?). What do I do for this?