If so, which one (VMware, VirtualBox, Virtual PC, Xen, QEMU, Bochs, etc. or something else)?
Inside which live CD environment (BartPE, Linux-based, etc.)?
I'd be looking to use Windows XP within the virtual machine.
I realize that you can use BartPE on a USB key, although you must realize that it's usually a bare-bones XP environment usually used for system recovery.
An easy solution to this problem would be to simply take a live Linux-distribution, and on the disc, put VirtualBox. Then, you could simply have a .VDI (virtual hard disk file used by VirtualBox) on a USB flash/hard drive, which you could pre-install Windows XP onto.
You can get a list of the Linux distributions that VirtualBox supports here.
Do you need to use virtualization? BartPE will allow you to boot directly to Windows XP from a CD. You will get much better performance from booting directly than you would running inside of a virtualized environment.