@glitcher Ya, you can format your USB with XP bootable CD. When the setup starts, it asks the drive which you want to format and install XP. Just select the drive for the USB and then you will get 4 options, to format using
NTFS, NTFS(quick), FAT32, FAT32(quick). Select NTFS quick and format the Usb and after the format is complete, exit the setup.