I tried this about a year ago. I bought a CF to IDE converter and a 1 gig Lexar CF. I installed XP but after about a week it would stop working and wouldn't boot. I tried to reformat the card with no luck. After trying several different brands of cards and killing them all I called the company that made the CF to IDE converter. They told me that all CF cards have a limited number of write cycles (around 10-30,000 depending on brand). XP is constantly writing information back to the swap file. There are also a lot of other things that Windows is writing back to the HD in the background you don't see. After doing a little research I found that XP just wasn't going to work. The only solution I could come up with was to use Linux and have it boot in a read only mode.
Hope this helps