Can I Install XP Pro to a 500GB USB Drive?

I picked up a 500GB USB drive today (Simpletech) to try and replace my old 320GB internal. And I get the blue screen every time it restarts for the XP Pro install on the usb drive. This is the error info I get too each time:

0x0000007B 0xF79F6528 0xC0000034 0x00000000 0x00000000

My specs as well if needed:

3.06ghz/533mhz fsb/1MB L2 Cache P4 (No HT)
1GB DDR2 533mhz memory
20x DVD Burner (Samsung)
320GB WD Hard drive
256MB GDDR3 ATI Raideon X700 Pro PCI Express x16
Windows XP Pro SP2
ASUS P5ND2 SLI Motherboard AI Proactive

I've googled around all day too and not really found anything at all about this too. And if I can't do XP can I use my Vista DVD?

 

Normally, no you can't, but it's apparently possible in theory. http://www.ngine.de/article/id/8
In reality, it would be much more simple to get an replacement internal HD.