After holding out for a looooong time, I finally took the plunge and installed Windows XP on my Eee PC! I'm actually posting this from my spanking brand new(?) OS! My first attempt was not up to par because it rendered my Eee PC mute (no sounds).
Anyway, I was able to finally make everything work now and so far so good! To save on the disk space I did not install any major applications on Windows, opting instead for the Portable Apps suite. Installed as portable apps are OpenOffice.Org, FireFox, 7-zip, GAIM, uTorrent, and few more. I am using portable apps not only to save disk space but also to prevent my Windows XP registry from being borked before its time. Now, almost all my programs (except for a 3rd party firewall app Ashampoo) are running off my 2GB SD Card. To "fix" the low resolution screen of the Eee PC, I also installed Astray+ *after* updating the graphics drivers as recommended here.
Even with Windows XP, the Eee PC is still not "able" enough to function as a primary PC and it will still act as my secondary, take-along computer. So far, I have not seen any obvious advantage of using Windows XP over the bundled Xandros Linux except that my Eee PC is now more vulnerable to 99% of the malware out in the wild.
I wonder how long I can tolerate using this before going back to Xandros?