You can do the following:
- Put the hard drive from the Windows XP computer in your Windows 7 machine.
- Format the hard drive, and create a new partition.
- Extract the disc or ISO contents to the new partition.
- In the partition, there should be a
boot folder. Open a command prompt, and navigate to that folder.
- In that folder, there should be a program called
BOOTSECT /NT60 X:, where
X: is the letter of the new partition. This will mark the partition as bootable.
After that, you should be able to boot from that partition, and setup should start.
Alternative solution: Follow these #1 and #2 steps instead of those above (warning: I have not tried it)
- Transfer the .ISO or disk contents to the computer over the network.
- Partition the hard drive, and make a new partition about 4GB in size. Make the partition NTFS.
Then follow steps 3 to 5 from above. If it doesn't boot, you might have to format the partition with Windows XP on it first (you can use a portable Linux distro or BartPE to do it).