I've set up XP for faxing and everything works except I get the error message "The fax preview cannot be displayed".
Inititally this worked and the fax was displayed in Windows Picture and Fax Viewer. Subsequently I installed a photo editor and, although I've removed all file associations in the photo editor, the Fax Viewer fails to work. It does correctly display JPEG and TIF photos, and some faxes I have on file.
I don't know if this is relevant to your particular problem, but I did notice a couple of days ago that there is a download on the Windows Update site specifically to deal with the Fax preview facility not working. Perhaps its worth a look?