I got the SESSION3_INITIALIZATION_FAILED bsod whenever I tried to install any of the stripped down versions of XP.. The work around I used was first booting from a full xp install the pulling out the thumbdrive after I formatted the drive and replaced it with a mini XP disk. So far it seems to work but I have had to skip a billion files by pressing esc. this method does not work you will need to grab a copy of nlite and make your own stripped down XP!!
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