Few months’ back, I had my laptop (LT1 - Compaq 2710) not booting up 'Operating System not found'. It removed the HD from the laptop and used it as an external HD for another laptop (LT2 - Toshiba) but the 2nd laptop will not recognize this HD and after running Ultimate Boot CD, I figured out that the HD is dead (or will die soon). I had backed up the data so no problem.

Now I have got another HD for this machine. The new HD is 200GB SATA (for desktop) Maxtor and It comes with Maxtor blaster etc CD's and I have a USB enclosure for this. How do I start using this new HD in the laptop using the USB enclosure? (A. Install Win XP and B. boot for external usb)

I have a win XP cd and I also made a USB bootable win XP with SP2 - (Win XP SP2 -USB) - from this instruction - http://www.ngine.de/index.jsp?pageid=4176
This CD works fine from my 2nd laptop - LT2 but it does not allow me to install XP on external HD (bascially it tries to re-install XP on my existing C drive for LT2). I removed the HD for LT2 and tried to Boot from CD (Win XP SP2 -USB) with external HD connected with USB - It started the boot process, but could not recognize HD (may be because its 200GB?). What do I do for this?

XP will only recognize 137GB without the sp2, this mean that it will only recognize the 137GB of that 200GB hdd. That's not your problem.

If your OS is on the hdd in the lap top why not partition the external hdd with maxblast, set the jumper of the external hdd to slave and use it as a slave drive.