I have been experimenting with the creation of bootable flash disk under Windows since it is not a trivial process and I have not identified a simple and effective tool doing the job.
There may be several variants, but this one works and it’s easy to describe.
You must be logged as local administrator to perform these steps.

Needed tools

• aefdisk32 – cmd-line partitioning tools. Get it from here. Note that this is needed under XP only, since diskpart in Vista supports removable disks.
• syslinux for win32. Get the last version from kernel.org
• WinImage. To extract the files form the original LiveXBMC image. Get it from its Home page.

Step 1. Identify the disk with aefdisk32

Since you may not want to erase your hard drive you need to be careful with this: using

aefdisk32 n /allsize

where n=1,2 …max number of disks you have, find the disk number related to the USB flash disk by matching the disk capacity. In the following example 2 is such a number.

Step 2. Erase the disk, create a primary FAT partition and make it active and bootable

Using aefdisk32 this is all in one single instruction:

aefdisk32.exe 2 /delall /pri:0:c /activate:1 /mbr

Using DISKPART on Vista:

List disk
select disk 1
clean 
create partition primary 
select partition 1 
active 
format fs=fat32 
assign 
exit

Step 3. Format the partition
If aefdisk32 has been used for step 2, the following is needed to format the partition:

format X: /fs:fat

Change X to the letter that your system has assigned to your removable disk!

Vista users don’t need to do it since DISKPART has already done it.

Step 4. Put syslinux on the flash disk

syslinux -f X:

Change X to the letter that your system has assigned to your removable disk!

Step 5. Extract LiveXBMC files

Using WinImage, extract the following files from the LiveXBMC image:

boot.msg
ext3fs.img
initrd0.img
rootfs.img
syslinux.cfg
vmlinuz

and save them on the flash disk.

That’s it. You are now ready to boot from the USB disk into LiveXBMC.