Question: I wanted to know if there was a way (that worked!) to both Install and Run Windows XP Pro from a USB 2.0 connected Hard Drive. My system does allow to boot from external usb hard drive, but when I tried to install Windows XP to the USB HDD, it didn’t allow me to.

My ultimate goal is to be able to move only the hard drives (w/ windows installed) to other identical systems, in times of maintenance, etc.

Answer: The Old New Thing: Why can’t I install Windows on my USB drive? (April 15, 2004)

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[…] Another reason not mentioned in this paper is that during any hot-plug operation, the USB bus is completely reinitialized. Windows really doesn’t like it when it loses access to its boot device. [/…]

The whitepaper mentioned there is Recommendations for Booting Windows from USB Storage Devices.

Possibly related: A Deep Dive into USB Boot (MSDN)