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External Drive with same Win XP installed

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If you "install" XP on drive H and move it to C, XP will continue to look for itself on drive H which doesn't exist after the move. In addition, if you install it while it's IN drive H, the current installation on drive C will be ignored.

I'm sure there are some tools that can fix the mess you'll end up with, but you'll be far better off to just put the drive where you want it before installing XP and be done with it. Besides that, you'll have a far cleaner system and be much happier in the long run if you just bite the bullet and "Git 'er Done!".