I got around this by installing with kvm, format the drive, then boot
with virt-manager and do the installation without formating the drive.

kvm -m 512 -hda winxp.qcow2 -cdrom xp_sp2.iso -boot d
just format the drive
then boot with virt manager, do NOT format the drive, choose "leave file system 
as it is". 

Of course, you either need to do this from the local machine (if you
have a gui loaded) or you'll have to get x-forwarding working across
your ssh connection. I did it from the local machine.

Sure enough a nasty little bug though.  :)

-- 
kvm can not run Windows XP
https://bugs.launchpad.net/bugs/105195
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