I tried installing win xp using the txt mode but after loading for a while just after it says windows is starting I will get the BSOD 7b error. I tried on two different computer and used two different win xp source disc but still cant get over this problem.

I am using a usb hard disk.

I need some help here thanks.

In the Menu Screen did you use Option 0) to Change the Setting in USB-Harddisk instead of USB-stick ?
Because that makes that rdummy.sys is used and this is essential for using USB-Harddisk.
rdummy.sys makes Fixed USB-Harddisk seen in XP Setup as Removable Device.
Read more about it in the Help File.

wimb

Yes I did.. maybe i should try on thumb drive but i only have a 8gb usb stick and i cant format it using petousb

For sticks > 2GB try HP usb disk storage format tool and FAT32. Google that phrase for download links.