Think of the following: You are a developer and you want to set-up a second Windows just for the fun of it (and for testing, debugging, …) on your notebook for example. You won’t want to use the internal hard drive, because your beloved and 100 percent productive system is sitting there waiting for your boot-up. What to do? Well … swap hard drives? Use USB2 storage devices (hard disk, usb stick,…) and install the testing Windows?
“The Internet” (and the official Microsoft support) tells you this:
“Windows cannot boot from an USB drive. If your computer supports booting from such device, you can load a boot loader to the USB device which starts Windows XP from the HDD.”
Too bad is impossible. Well, is it?
“We will dump the contents of your original Windows XP CD , extract a few files from the Image using ISO modification software, edit the files, and put the modified versions back on the ISO. The resulting ISO image is burnt back onto a CD media, and can then directly be used to install Windows on your USB drive.”
Take a look at the complete “How-To Install and Boot Windows off a USB device”.