After trying many options I found a simple way to USB boot the Xp Recovery Console using PeToUSB.
First create a non-iso Bartpe, then use PeToUSB to create a working bootable stick, no Server 2003 files required.
Then copy the i386 from your xp install cd to a temp folder on the usb.
Boot into Bartpe, navigate to your temp folder and execute> winnt32.exe /cmdcons
Click OK, follow the instructions on the screen to finish Setup, and then restart your computer.
Worked great for me.
You should also be able to use the same setup to install/upgrade XP by executing> winnt32.exe /syspart:C: /tempdrive:C: /makelocalsource
Replace C: with the drive you want to install Windows to.
Edited by gcraw01, 03 February 2008 - 11:07 AM.