NO, I do not use fbwf or XP on read only media.
I just pointed you to a working project.

As I see it it is a better approach to start from something working and later add your own variations than starting from something that does not (your current looping, failing to boot setup).
However, you completely fail to give
ANY meaningful detail about:
- what you have done/are doing
- what you wish to achieve
In other words, instead of approaching the problem in a "generic" way, like "I want to boot with fbwf", it is usually more productive to approach it in a specific way, like (just as an example):
- I would like to boot a XP SP2 in read only mode.
- I would this to run <name the program/programs or scope of the build, like data recovery or web surfing>
- I would like to have the build on <CD, HD, USB stick, whatever media>.
- The media is <IDE/ATA, SCSI, SATA, USB, Firewire, whatever>.
- The target machine has <128,256, 512 Mb, 1 Gb, 2Gb, 3Gb, etc.> of RAM.
- The approximate size of the build/image/media is <256, 512 Mb, 1, 2, 3, 4 5, etc. Gb>
- <I cannot afford/I can afford> to buy a License for third-party Commercial software
- etc.
- etc.
It is possible that there is another solution to achieve the goal you have in mind that you didn't even think about.

jaclaz