Coincidentally, I just finished working with an Iomega 250 MB external zip drive a little while repairing a friend's computer. His works fine with Windows XP.
There's not a lot to these drives -- they are, as you say, USB powered (no AC required). Assuming you've ruled out the USB cable as being a possible culprit (have you?), sounds like you have a bad zip drive. There's not much else it could be. These are plug 'n play, and Windows XP will certainly be fine with them. You might, for the heck of it, check Device Manager, scroll down to the bottom to Universal Serial Bus controllers, and make sure nothing there has a red X or a yellow question mark next to it. A prob with USB drivers or ports is highly unlikely, particularly since you say you tried the drive with a laptop computer and had the same prob.
Hope this helps.
Ken
PS: To eject a disk, there's a small button underneath the disk slot on the front of the drive. But I think it only works if there's power to the drive. And the drive I had here had no hole to put a paper clip in (although my old 100 MB Iomega zip drive does). You might have to take the drive apart (not easy either, as there are no screws) to get the disk out. The blue plastic top can, however, be pried open. Be patient and be careful though.