Your topic question's answer is yes, but then you note XP. Microsoft doesn't supply XP in a form for you to run it from an external USB or Firewire or other type drive.
I will note that some one has heavily modified XP to do such (lookup BartPE) but decline to offer any further information on this dead end.
-> Linux will install and run happily on such a drive.
I would like to install Windows XP onto a 6GB Portable Hard Drive in order to boot up a computer that can not be booted up from its own hard drive. Is there anyone who can tell me if this can be done or not and if it can any directions?