Well,A software called mojopac can do just that...........
Note:The pc you are trying to run your Xp(on the flash drive..),should also have the Xp operating system.
It copies all the data required like your music,documents,videos,bookmarks...,But it DOES NOT COPY YOUR WINDOWS KERNEL,it will use the kernel of the machine you insert the usb drive into.
Use a 4 GB pendrive with USB 2.0 high speed,to achieve best results..
Well,According to me its a great piece of software.......Highly productive..
Cheers,
Njoy