Booting from USB, Blue screen after the splash screen...

I'm trying to boot XPe for my hand held device using Transcend JF V60 flash of 4 GB. I have prepared it using ufdprep.exe and have copied the built image into it. (Have included the USB Boot 2.0 component and all its dependencies while building).

While I formated the USB stick the command I gave was c:\windows embedded>ufdprep E: (So I dont know what is the default file system being used FAT32 ?)

1.I insert the USB stick into the hand held
2.From the BIOS I instruct to boot from this USB stick
3.I get the splash screen with the windows XP logo and the status bar
4.Soon after this I get a blue screen with PROCESS1_INITIALIZATION_FAILURE status with STOP: 0x00000006B (0x00000000, 0x00000002, 0x00000000, 0x00000000)

How do I debug this ? Any suggestions on booting from USB ?