Never got a Windows XP install with a usb pen to work, so yeah its painful to get it to work.

But getting Windows Vista / 7 to boot off usb, is much easier.
(Not posting guide as its already been posted in the thread.)
Dont really own a netbook, but i do own a ASrock Ion 330, and i think that its specs are similar to a netbook, if you count off the fact that it has a dual core cpu and a Nvidia Geforce 9400m.
First tried using a XP professional install and everything worked as expected once the drivers where in place, but i heard so much talk about Win 7 so i tested it out by swapping the hdd and doing a clean install.
It worked "out of the box" with no driver issues whatsoever.
Its fast and light on ram usage too.
But it was bought to be a dedicated media center so its now running a Ubuntu 9.10 install with XBMC using vdpau decoding.