If nothing works, replace the ntoskrnl.exe by a special ntoskrnl.exe.
This ntoskrnl.exe works on XP SP1 and SP2.

It is the ntoskrnl.exe from XP SP1 (not that from CD), but the one from
your updated XP SP1 via Microsoft with Version 5.1.2600.1634 .
(xpsp2.050301-1526)
It is not XP SP2 ntoskrnl.exe .
If you receive then after changing a 021 error message, disable all harddisks and
CDROMS in your Bios. After first USB boot you can enable them again.
This ntoskrnl.exe works also for Windows Embedded
means that you can run FBA on your USB device.