To make a pen drive bootable you have several utilities available. But if you want an entire OS to boot from your pen drive there is a trick. Make sure that you do this on atleast a 1GB Pen Drive. You can disconnect the Harddisk of a computer, make CD as first boot option, then insert the formatted Pen drive and start the PC. The Windows XP will get installed on your pen drive.

Thankyou for your reply..

But I found an HP Utility which is actually designed for formating their own devices but will also work with any Pen drives. It gives us options to select a directory that contains msdos boot files or even a dos boot image like the one that could be created from the boot sector of a windows 98 CD.
I found this utility much useful for creating bootable pen drives.