Hi, I am thinking of buying a Windows XP systems, I see alot of
systems sold on ebay sold without Windows XP, but the ads also stated
that all system components has been configured using Windows XP, so
the Windows XP has been installed? but deactivated? I assume that I
will buy a copy of Windows XP from a store and activate it with a
serial
number. I am curious as to how the seller do this?

Use the SYSPREP tool. Install with a Generic (Microsoft Provided) Key
that cannot be activated. The customer is then forced to enter his/her
own license number for that installation.

See these references(the first being the most informative):

http://www.microsoft.com/technet/prodtechnol/winxppro/deploy/wpadepl.mspx

http://support.microsoft.com/default.aspx?scid=kb;en-us;302577&sd=tech

http://www.uea.ac.uk/itcs/software/xp/xp-deploy-tools.html

They use 2 tools (both are on the OPK disk, supplied to system builders)

When they are installing Windows, they use the Sysprep file on a
floppy disk (all windows XP versions look for this at the start of the
install just before the first blue screen)

- the sysprep sets things like the product key, country code, keybord setting etc.

Once the OS is installed the Manfactucturer can add programs and
install the correct drivers - do any branding required in windows.

then the system is ready to use.

before sending to the end customer the use a program with a function
called reseal, this locks windows for delivery.

when the customer gets the PC it will ask Their Name etc, and for them
to activate the Windows within 30 days.

Thank you both escoultuins and shopfrontuk, I am getting some
understanding as to how it was done. When the end user receives the
system, does he need a windows xp package from the store like Best
Buy, and enter the serial number? that is without  having to install
Windows XP himself, or install any hardware drivers? I will pay both
of you $10 right now, and any elabortion or expansion of the answer
will be considered for additonal payments.

What is needed is a valid key for windows. Lets say, for instance, you
click to activate the windows installation from one that has been
sysprepped and resealed. It will connect to microsoft, find that the
key is a generic key, and then ask for a valid key. If you've
purchased a copy of XP from anywhere (best buy, office depot, an
on-line store, whatever) you can simply enter the key off of the
package you purchased. Microsoft will see the key is legit and
activate windows.

By using a generic key like in the articles I referenced in my earlier
comment, the builder has the oppurtunity to customize the system and
have it ready. That way, you get a system that is running with all
drivers and included software installed and ready to go. The builder
has just "resealed" the system so that the 30-day timer is reset and
you are asked personal information at startup (like the name you want
for your user, if you want to register, etc).

I hope this is the information you were after.