I boot up the laptop from the USB drive and the XP installation stuff begins... but soon as it needs to reboot, it reboots and I end up going round in circles.
Long time since I installed XP. However I'm pretty sure you should remove the installation media before it reboots. Change the boot order in the BIOS to hard drive first. Then when XP has installed it will boot to it instead of USB again.
It's for a 10" netbook and Windows 7 task bar and stuff takes up too much screen real estate. If it wasn't for certain programs I use I would have just used Linux on it.
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