I have followed all the instructions that you have provided and even this one: http://komku.blogspot.com/2008/11/install-windows-xp-using-usb-flash-disk.html
I have a HP Mini 210t netbook, with an 8GB SanDisk Cruzer with U3 partition on it that I had to remove. I formatted the drive; The source of my XP Home was a ISO download from MS Technet. Then mounted to a virtual drive when I made the bootable flash drive, everything seemed to copy onto the drive just fine. It will not boot from the Flash drive. I have changed the BIOS to boot from USB Diskette on Key/USB Hard Disk then USB CD/DVD ROM Drive then USB Floppy then Hard Drive. Those are my only options. It does not recognize that there is a USB bootable device. I can select the SanDisk from the Boot Manager and it still just goes to the Hard Drive. The PC detects it but will not boot from it. At the end of the instructions I have tried both options where is says “Would you like USB-stick to be preferred Boot Drive U: don’t use this if SATA" I have selected this option and I have started over and didn’t select this option and neither work. Any help on this would be greatly appreciated.