Basically, everything as far as i can see. After completing this tutorial, your Windows XP install should directly boot off your USB-drive, and be fully upgradable, DirectX games will run, all apps i tested work like normal, speed is the same as with a real HDD (you need USB2 though) - so it is in fact a fine solution as far as i can see.
all technical details are from this web page drive setup instructions where copied
* first step Sorting out the "Bootability" of your USB-Drive
NOTE: If it goes beyond the partition selection, your USB drive is already fine for booting Windows XP.Connect your USB drive to your computer, directly, without a Hub. Then, shut down your computer, disconnect any other hard disk drives from it, and insert your original Windows XP CD into the drive. Start the installation, and proceed to the section where you are allowed to pick a hard drive.
If not you will get an error like "Windows is unable to find your drive, partition, data etc bla". This is usually not a big problem. All you need to do is "properly" format the drive. get this HP tool
and use it to NTFS format your USB2 HDD completely.
* next step installing xp
Shut down your computer. Disconnect ANY internal and external hard drives (so Windows cannot find them during installation and mess up their Master Boot Records hehe). Some computers will have trouble to boot without an internal HDD attached, check in your BIOS and, if possible, remove the HDD from the boot sequence and set the USB Harddisk as the first boot device, and the CDROM as second.
Also, now connect your USB Harddrive directly to the computer
* Windows should install just fine, with these exceptions:
1. During driver installation, the USB drivers will prompt you, as they are "not certified" - This is normal. Our changes invalidated the checksum, and therefore the driver is no longer signed. Just press "yes" a couple of times.
2. Upon completion of the install, the system will complain once on the first bootup that the pagefile does not exist. You can ignore this for now, as Windows will work fine without it. People are looking at fixing this issue, but its not critical for now.
* Once everything is up and running , shut down and reconnect all your drives.
:Release: 09.02.24 / v 2 / 9b1964be0a9e35038cbe13de7907ed8b / RVM Integrator only
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updated to reflect webpage updates and changes