Are you sure the CD is bootable? That is the only thing i can think of at this point. The only other option is to make the drive into 2 partitions. The first partition small like 1GB and the other the rest. The 1GB will have all the files from the XP CD copied onto it. From there insert the drive. Use a boot floppy and get to a command prompt. Go to the partition that the XP is copied to. From there install via i386\setup32 i think. Not sure if that is the command to install XP from a dos prompt. I had to do this a long time ago.
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Phone: LG Optimus G Pro
Running: Stock JB from LG with Nova Launcher