XP Pro Can't Install on USB-attached HD Optiplex GX270 ?

This should just work but isn't... So I'm very curious as to how to solve the problem.

I'm attempting a fresh install on a Barracuda drive which I've attached via USB port to Dell Optiplex GX270. Using regular XP Pro Install CD. The setup package reconizes the drive and partition, but when i hit 'install' it immediately errors to a screen reading:
"Your computer's startup program cannot gain access to the disk containing the partition or free space..."

Anybody know how to fix this? The system does have a separate entry for "Boot Sequence" and I have USB enabled there. I have all other HD types "Off".. thus SATA primary and secondary are "OFF", what Dell calls "Primary Master", by which they mean IDE-attached, and "Slave", both "OFF". I tried what they call "OS Install" mode but this is merely a way to cripple memory down to 256mb...

?????