I still remember the good old days when everyone was using Windows 98. I had a bootable floppy disk that automatically loads CD driver then I copy all the Windows 98 setup files (about 100MB) to local hard drive and launch the setup locally from hard drive. It is much faster compared to installing from CD-ROM and the best part is whenever Windows is missing of any files, it’ll automatically load from the CAB files that I originally copied to the hard drive.
When Windows XP came, the installation CD itself is bootable and people no longer copy the setup files to local hard drive anymore. The computer user saves up to about 500+MB of disk space by not copying the I386 folder but it is actually very troublesome when they want to run system file checker (SFC) or installing supplemental language support. Doing any of this 2 above will require you to insert the Windows XP installation disc.

Today, one of my customer had Windows problem and I knew it could be fixed by running system file checker but then he was prompted to insert the XP install disc and he didn’t have one. Because of the laziness and careless of his previous tech guy, I now had to drive all the way to his office just to pass my customer the XP install disc so he could run SFC.
Basically this is what I did on my customer’s Windows XP computer to make sure that he didn’t need to insert the installation disc anymore.
1. Insert Windows XP installation disc to computer. Let’s assume that the CD drive is D: drive.
2. Copy the i386 folder from D:\ drive to C:\ drive. Now the C: drive should have an i386 folder too which looks like C:\i386\
3. Go to Start > Run, type regedit and click OK.
4. Navigate to the path below.
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\Setup
5. At the right pane, there should be a name called SourcePath with the Data value as D:\. Double click on the SourcePath and change the value data to C:\i386\

Now whenever Windows looks for the original installation files, it’d automatically look in your local hard drive instead of bugging you to insert the CD. An old tip which could be obsolete very soon because of the upcoming Windows 7, but still I’d advice anyone who still provide computer support for Windows XP to do this.
As for future versions of Windows, I believe the SourcePath is no longer required. For Windows Vista, there is no source directory like there was in XP. Basically what happens during a vista installation is the image file install.wim is expanded and it has most of the files for the vista install inside of that.
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