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Windows 2000 and Windows XP are both bootable CDs, meaning you can insert your CD into the CDROM drive, reboot the computer and you should be able to install XP/2000 from there without needing to do anything else.
If that didn't work, you may need to check your CMOS/BIOS settings to ensure that it can boot off a CD.
And yeah, I like running XP on nothing less than 512MB
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