|If the external cd-rom can be read from dos you should be able to start the xp install from dos. |
To start the install you will need a dos boot floppy with Smartdrv.exe (google should find you a copy) and that has been configured properly, a 98se boot disk should work fine so long as you copy Smartdrv.exe onto it.
You may or may not need to setup a fat/fat32 partition prior to this.
Where x:\ is the cd drive
Alternatively if the cd drive can be accessed from win98 navigate to x:\i386 and double click on winnt32.exe.
Got side tracked if you don't want to install from cd smartdrv may help with you copying issue...
Also what file system is being used? I'm pretty sure fat<32 has a limit on root entries - you could try copying to another [sub]directory.