How do I create a "Bootable CD" for Windows XP?

You don't have a microsoft installation cd? Google UBCD, or get this one which gives you a recovery console on a bootable cd, or ...
Because you may not be in possession of an Xp install CD, here's a boot disc with a recovery console on it; the console runs from the cd so you don't need an xp cd or any files from your C drive. I know it works. All you need is an image burner like Nero 6, CD Writer...
Tips... unzip the file to get the iso and then BURN THE IMAGE. Do not use Data CD or any other mode cos all you will get is a copy of the iso [which you have already...and your new CD will not be bootable]; if you look at the files on your new cd and see .iso mentioned anywhere, start over. If you use Nero 6 then the defaults for image burning are fine, skip the silly advice that you may find on the web. You merely select Burn an Image, browse to and select the .iso and press Burn. That is all it takes. Burn it to a CD-RW if you wish; there is no need to close/finalise the CD whether it is a RW or R. Multisession works fine. If you use a CD-RW then hold the burn speed lowish, say 4x.
http://www.webtree.ca/windowsxp/Tools/bootdiscs/xp_rec_con.zip
To use copy in Recovery console unrestrictedly, add this value to your registry now:

regedit HKEY_LOCAL_MACHINE\Software\Microsoft\Windows NT\CurrentVersion\Setup\RecoveryConsole
"SetCommand" = 1

Thanks for the quick reply, I'll get started on this.

Once you have that registry entry changed to "1" you can make use of it:
You can now add environment variables using the set command to set up any of these options also:
Go Start, run, type cmd, and Enter, then paste in these lines [not including the explanations!]:
set allowallpaths = true -Allows access to all files and folders on the computer
set allowremovablemedia = true -Allow files to be copied to removable media, such as a floppy disk
set allowwildcards = true -Enable wildcard support for some commands (such as the del command)
set nocopyprompt = true -Do not prompt when overwriting an existing file
You may or may not want the last. But now Recovery Console will work in your sys with no silly restrictions.