When I reinstalled XP from a USB drive onto my Acer netbook, I had do do the Text mode install which when through it's business and then automatically rebooted and for the GUI mode install. I.e. it was a two stage process.
However, the Acer comes with a recovery partition and maybe you should have tried that first (maybe you still can, by hitting ALT+F10 at the BIOS screen immediately after hitting the power on button. Google for Acer eRecovery for more info.
If the Acer eRecovery doesn't work and you still want to reinstall from a usb stick, one further point from my experience:-
After the text mode part of XP install had gone through and the install rebooted to go into GUI mode, I got message about missing / corrupt HAL.DLL. This was caused by the boot.ini not pointing to the correct disk partition.
I think this was a combination of two things. Firstly the rdisk (in boot.ini) should have been 0 (meaning the first HDD) rather than 1 (meaning the 2nd HDD). This might have been caused by the USB flash appearing as the first disk (i.e the netbook thinks it is a hard disk) and so making the real HDD apppear as the second disk during the first part of the install.
Secondly, as the Acer Recovery was on the first partition, Windows was on the 2nd. so the partition needed to be changed from 1 to 2.
I can't quite recall if I fixed this via Recovery Console and/or editing the boot.ini on the pen drive - but I got it working in the end.