The guide i seen you can have a install size of 575mb or less. I've just installed XP via a USB stick all seems fine i just need to install the drivers.
I have seen that guide, but I've not used nlite before and that did seem like quite a long process. This was just a test install really and everything installed quick and hassle free, I just followed the instructions in the Asus Eee manual.
Win XP runs great on it though, a lot better then I had expected.