I was running an external Iomega CD-RW drive (Predator) on a notebook computer under RC2. When I did a clean install of WinXP Home Edition on this system I still had the operating system's native ability to write to the USB-connected CD writer. But after I went to the Windows Update site for the latest updates (including an update of the CD writing features of Windows XP) Windows XP lost its ability to recognize the drive as a writer. I installed Nero, and it works just fine with the drive. The CD writing updates didn't seem to adversely affect an IDE or SCSI writers over which I hold sway. I have heard complaints from other USB-connected drivers, however, that the CD writing updates killed the functionality for them, as it did for me. I think that zzzz's suggestion deserves consideration.
Good luck.
- Collin