This could almost be a topic of its own, but the first stage of putting XP on a CD is to turn off all that junk that wastes space and bloats the operating system.
However, it will generally be far easier if you have a DVD burner, since you can make a bootable CD with many gigs of capacity. I don't have a DVD burner yet, so for now I'm making just a basic, stripped down CD with a minimum of software... basically just Windows itself and no other programs.
A standard XP install uses about 1.5 gigs of disk space, but most of that is not critical to the operation of the computer. If you have more than about 192 megs of memory, I've discovered that you can even disable virtual memory completely and XP will still work okay.
Do NOT do this with your primary computer. Do this on a secondary computer where it doesn't matter if you screw up and you can freely reformat and reinstall Windows. (If you try these hacking steps on your main system, you deserve the pain you'll receive for being such an idiot.)
Step 1:
Install XP as FAT32 only on test/hack systemThere's no such thing as an NTFS-formatted CD, and you may need a Win98 boot floppy at some point to hack this when XP is not running.
Step 2:
Make Windows stop trying to protect you from yourselfOpen My Computer
Go to Tools - Folder Options...
Click on the
View tab
Under Hidden files and folders, select
Show hidden files and foldersUncheck
Hide extensions for known file typesUncheck
Hide protected operating system files... yes, Microsoft, I really DO want this.

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Step 3:
Disable System Restore, and delete restore pointsGo to Start - Settings - Control Panel - System -
System Restore tab
Check box
Turn off System Restore and hit OK
Windows warns you that all restore points will be deleted. Hey, great. Hit OK.
Step 4:
Castrate Windows File ProtectionGo to Start - Programs - Accessories - Command Prompt
type
SFC /CACHESIZE=0 and hit Enter
type
SFC /PURGECACHE and hit Enter
Step 5:
Turn off the virtual memory pagefileGo to Start - Settings - Control Panel - System -
Advanced tab
Under
Performance hit the
Settings button
Click on the
Advanced tab
Under
Virtual Memory hit the
Change button
Select
No paging file and hit the
Set button
OK - restart computer
Step 6:
Disable hibernationGo to Start - Settings - Control Panel - Power Options -
Hibernate tab
Uncheck
Enable hibernationStep 7:
Delete cached setup driversGo to My Computer - C: - Windows (show files) - Driver Cache
Delete the
i386 folder
Step 8:
Gut out the help systemGo to My computer - C:- Windows - Help
Select all files other than
Tours (Hit Control - A, then hold down Control and click on Tours)
Delete them.
In a few seconds the
Windows File Protection alert will appear. Since you gutted out its cache folder it can't magically restore the files you just deleted, and it wants the Windows setup CD. Well...
ignore it. Drag it off to the far bottom-right of the screen, so just the tiny upper-left corner is visible. Now, continue deleting files...

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Open the Tours folder, select
htmlTour, and delete it.
Open the mmTour folder, select all, and delete them.
Step 9:
Gut out the remote assistance systemGo to Start - Settings - Control Panel - Administrative Tools - Services
Select the
Remote Desktop Help Session ManagerRight-click on it, and choose
StopRight-click on it, select Properties, and under
Startup type, choose Disabled
Close all those windows
Go to My Computer - C: - Windows - PCHealth - HelpCtr
Select all files other than Binaries and delete them
Open the Binaries folder, and delete all files inside
Step 10:
Get rid of those stupid animations and stop the handholding in file searchGo to My Computer - C: - Windows - srchasst
Select all files and delete them
Ahhhhh, we've got the old Win2000 file search back.
Step 11:
Disable file search indexing service and delete catalogsGo to Start - Settings - Control Panel - Administrative Tools - Services
Select the
Indexing ServiceRight-click on it, and choose
StopRight-click on it, select Properties, and under
Startup type, choose Disabled
Close all those windows
Go to Start - Search - For files and folders
On the left, you'll see that it's unhappy about the Indexing Service being disabled.
Click on the highlighted
Indexing Service link
Click the
Advanced button
For each catalog listed, select it, right-click, and choose Delete.
Close the Indexing service window, and click OK on the other window (leave it indexing off)
You should be able to stop here. At this point, the total hard drive size is about 670 megs, just enough to fit onto a 700 meg CD-R.
Oh, Windiws file protection is still unhappy. Move up the window for WFP, and click
Cancel. It'll next ask
Hey dumbass, those files were important! You sure you want to screw up Windows, you moron?! Click Yes.

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Oh, but it hasn't given up! It'll again prompt you. Hit Cancel, and tell it one more time you don't care, and it will finally give up and not bother you anymore.
-Scalar