1 GB USB stick is enough.I have done it a million times and it works like charm.
Look on the internet for the program called "USB_MultiBoot_10".With it you can put your Windows XP CD contents on your USB stick and make it bootable so you can install Windows XP from the USB stick with no problems.
If you dont know how to do this,I will connect to your computer with the Team Viewer and do the work for you if you want me to and explain you everything.
NOTE: You MUST have the USB stick of at least 1 GB and the Windows XP CD and its serial number!!!
Cheers!