Is it possible to install windows xp through virtual drive (like daemon tools)?

I wanted to know if it is possible to install windows xp using a virtual drive software like daemon tools. Can it be done by mounting an image file of windows xp? I know how to do it through usb stick. But through daemon tools etc., it might get even easier. Any suggestions, advices or experiences of trying so?
any method like making a separate partition etc. would do. I want to install windows xp sp 2...

yes it is possible.......it is from my personal experience that i installed windows7 by mounting it on daemon tools on xp sp2 and it worked perfectly.......so go ahead.!

thank you for replying ali.smarz...
but i have a doubt though. i want to install windows xp sp2 using daemon tools, on a system which already has xp sp2 installed. during the installation the system might go for rebooting. so, i wanted to ask if daemon tools remains active even at boot time?
sounds a bit noobish, but can that be so???