What is the wifi card that you're using, and what chip does it use? Also, what driver are you using in Linux? Have you tried ndiswrapper/rt73/madwifi (depending on the chip)?

Anyway, you can definitely use XP as an AP. Have a look <a href="http://www.netlife.co.za/content/view/35/34/">here</a> for a short guide. Just be aware that I haven't tried it so I can't guarantee it works.