Since this problem seems to be somewhat obscure, I thought I explain the solution I found.
To copy a Windows system volume using volume shadow copy service, the best program seems to be ViceVersa (Fully functional trial on http://www.tgrmn.com/). I also tried the freeware "Shadow Copy" by Runtime Software but this is very buggy and has an terribly limited GUI.
Also note, for some reason shadow copying the current user's profile seems to fail on Windows XP. So copy while running as some temporary user whose user directory you can exclude from the copy.
Before trying to boot from the new harddrive, one also has to modify the drive-letter assignements in the Windows registrs ON THE NEW DRIVE: for this, load the system registry hive from the new drive and rename in "Mounted Devices" key:
"\DosDevices\D:" to "\DosDevices\C:"
Assuming that D was the drive letter for the new drive and C the drive letter of the system volume. If this is not done, Windows will appear to load but freeze just before it reaches the login screen. Do not forget to unload the registry hive after you are done, otherwise you may run into problems when rebooting from the old drive.