Okay, many months later, I found this How-To description for modifying the WinXP install CD so that it just works when the target is a USB drive.

And.. it just worked for me. Fiddly to do the mods -- needed an ISO image editor, and I couldn't find one for Linux. But I did find a cracked copy of a Windows based tool that did the job for me (inside a throwaway VMware snapshot).

And one has to ensure that the external USB target disk is the *only* disk in the system during the install, as otherwise the XP installer still puts the bootloader onto the wrong drive.

So I now have a WinXP installer CD that also happens to work for USB install targets, plus a 60GB external bootable USB drive with XP on it, along with DVDShrink, DVDDecrypter, and PhotoShopCS (my three most used Winapps).

Cheers