Microsoft has released a headless support update for Windows XP Embedded with Service Pack 1

This is the component update to address a scenario when you build a Windows XP Embedded with Service Pack 1 runtime for a headless device and the device fails to boot properly. Since the device is headless, you have no way of knowing it is not booting. In order to boot, Windows XP Embedded requires a display driver. Headless systems have no display hardware, and therefore do not load display drivers, causing Windows XP Embedded to fail during the boot process.

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