|The only requirement for XP seems to be it must be at least SP2:|
There's also some troubleshooting hints there.
You say the windows 7 computer is fat32. I assume you mean the external drive is fat32. I don't think windows 7 will install on a fat32 drive unless the partition is 32 gig or less. But I don't think that's a problem with external drives.
If all else fails you may just have to get a smaller flash drive and/or one from a different manufacturer (or use the 16 gig flash drive) and copy them over in smaller chunks.
Or since you're worried about losing the files maybe you can copy them to the windows 7 computer--assuming you have enough room--and let that be your backup for them. Then try connecting the external drive to the XP computer.
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