OK, let's see, I placed five files: grldr, menu.lst (which grldr doesn't find and falls back to command line), ntldr, boot.ini, ntdetect.com
CODE
map --mem (fd0) (hd0,0)
Error 67: Should not specify '--mem' when mapping a whole drive
So I tried
CODE
map --mem (fd0)+1 (hd0,0)
FAT16 BPB found with 0xEB (jmp) leading the boot sector.
info: BPB total_sectors(511937) is less than the number of sectors in the whole disk image (514080)
probed C/H/S = 32/255/63, probed total sectors = 511937
Error 28: Selected item cannot fit into memory
But that's OK, because RAM is only 128 Mb

, and USB stick is 256 Mb
CODE
map (fd0)+1 (hd0,0)
FAT16 BPB found with 0xEB (jmp) leading the boot sector.
probed C/H/S = 32/255/63, probed total sectors = 511937
floppies_orig=2, harddrives_orig=0, floppies_curr=2, harddrives_curr=1
map --hook
root (hd0,0)
Error 25: Disk read error
root (hd0)
Filesystem type is fat, using whole disk
chainloader /ntldr
Will boot NTLDR from drive=0x80, partition=0xff(hidden sectors=0x0)
boot
The system reboots after that.
Meanwhile, I made NTLDR boot XP Embedded to a certain stage. It seems that arcpath in BOOT.INI should read "multi(0)disk(0)fdisk(0)" when USB is seen as FDD (superfloppy).
The next problem is that something (BIOS?) seems unable to handle FAT16 correctly

If my Windows\System32 directory is fragmented, it fails during boot to find files which are in the 2nd (3rd, 4th) fragment. So I need to copy certain files first, so that they fall into the 1st fragment of System32 directory. Then they are found by loader. Also, if I copy Windows folder first and BOOT.INI, NTLDR and NTDETECT.COM files next, then NTLDR fails with message "Fatal error 1 reading BOOT.INI"
Where I'm stuck now: the boot process continues up to the moment when USB drivers should be loaded. I traced it by booting in the safe mode and looking at the files list. It loads some USB drivers and then fails with BSOD 0x7B. I've read Dietmar's tutorials - he mentions that XP Embedded does not support booting from SiS chipset as it has only OHCI compliant, USB 1.1 controller, while XP Embedded expects to find EHCI USB 2.0. That is exactly my case - the SiS chipset!

I've made necessary adjustments as in Dietmar's tutorials but I'm still getting BSOD 0x7B.