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size drive needed?

You could get away with 4GB if you only install the base OS and drivers and deleting all the patch files after updates. You won't be able to do much more and will likely end up under a GB in free space. Personally I wouldn't go any lower than 10GB unless you just want to throw the OS up to quickly test something.
 

I just looked at my XP directory on a laptop and it was only 1.3g

Seems like a bootable 4g key with XP is at least possible.
Cramped, but for travel, seems ok.

 
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