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XP no, Vista yes...
You could get a USB floppy for about $20, thats what I have, just for that purpose. Well that and building boot sectors on CD's and DVD's...
Use nLite to slipstream. No need to do any of it manually. You can slipstream SPs, hotfixes, drivers and more. Vista has a similar vLite but at least you can use USB for Vista drivers.
On a side note, has this gotten any better? The last time I used this (.8 or so version) it was really buggy.