Windows XP Embedded is a modular version of Windows XP Pro that comes with specific tools to create the OS, and Embedded features that enable scenarios specific to the Embedded area. So the first thing you have to do to build a first Windows XP Embedded is to get the list of peripherals installed on the hardware you are targeting. This can be done using a tool called Target Analyzer. This tool can be run from DOS, Windows or WinPE.
OK, here we are with a virgin hardware (no OS, no DOS, and HD or Flash not even formatted), no floppy disk reader (that could have been useful to boot a DOS from a floppy and run the Target Analyzer tool from there).
Let me suggest a couple of solutions to start working on XPe. Most of the recent hardware (embedded or not embedded) have a BIOS that is compatible with USB boot. That means you can plan to work with a USB Disk on Key to boot "something" in order to prepare and analyze the hardware.
the USB key will not be formatted correctly if the "active" command (which writes the MBR) is sent before the "format" command, so the right order for me is : clean, create partition, select partition, format, active, assign, and then exit
Regarding the WAIK. I downloaded the file from Microsoft as per your link but trying to intall it the MagicIso comes up with a dialog saying some components need to be configured. From wghat i've read WAIK is to install Vista not Xp. Have i misunderstood the procedure?
I confirm this version of WAIK is for Windows Vista. Do you have more details on the errrs you are getting?