Troubleshooting Plug and Play USB - Power Cycle and Malfunctioning Cables
Power Reset: The first step is a simple one called "Power Cycle" or "Power Reset". Detach the USB device from the computer and turn off the computer. Unplug the power supply and wait for a minute. Plug the power cord back and turn on the computer. Wait till Windows XP loads fully and then insert the plug and play into the USB port. The power cycle causes the data bus to reset. This may help Windows XP in identifying the plug and play device. Most of the times, the problem is fixed at this stage. If Windows is still unable to detect the USB plug and play, we will check out the Windows XP troublshooting steps explained in the following paragraphs.
Problems with Malfunctioning Cables - If you are using a USB extension cord to connect the Windows XP plug and play USB devices, detach the USB cable from the computer port. Move things around so you can connect the plug and play device directly to the USB port. If the operating system recognizes the device, you need to change the cable. Please note that not every cable will work with different USB plug and play devices. The USB cables are categorized based on the data transfer speeds that vary from cable to cable. You need to check for a cable that is compatible with your plug and play USB device. It is recommended that you note down all the specifications of your computer and take it to the shop so that the sales person can understand your requirements.
If the cables are fine, then we will have to go for advanced Windows XP troubleshooting for USB plug and play devices.
Advanced Windows Troubleshooting for Plug and Play Devices
Windows XP has a certain power limit for each of its ports. If any of the ports attempts or starts consuming more power than the specified limit, the operating system suspends the port temporarily. The same may happen to the USB ports due to which the Windows XP plug and play devices are not recognized.
Note: If you feel uncomfortable with playing around with your computer, it is recommended that you call in any technician. And even for advanced users, I will remind you creation of a system restore point is always a good idea so that you can restore your system back to the prior state in case anything goes wrong.
Updating the BIOS and USB Firmware to Restore the Settings of Windows Ports
Though the power settings are restored when you give a power cycle as explained above, sometimes the problem lies with the firmware, meaning the hardware itself. There may be plenty of reasons why a port would draw more power than allocated. In case the power cycle did not fix the USB port, you may need to update the firmware. In addition, you can also update the system BIOS so that you can start afresh.
You can explore the website of the manufacturer of your computer for the latest version of USB firmware and any BIOS update so that you can download it. If you are still under warranty for support, you may call or chat with the technical support to get the link that provides you with the latest version of the firmware and system BIOS.
Once you have the links, download the updates, install them, and restart the computer. Insert the Windows XP plug and play device into the USB slot. This should solve your problem. In case the updates too fail, our final resort to fix it ourselves is to reinstall all the USB controllers.
ScreenShot - Removing USB Controllers in Windows XP Device Manager

Troubleshooting Windows XP for Plug and Play – Reinstallation of USB Controllers
When everything fails, it implicates two possibilities. Either the USB controllers have gone corrupt or the USB ports have gone bad. In the latter case, you will have to replace the USB ports. But before that, let us check out if the reinstallation of USB controllers can solve the problem of Windows XP plug and play USB not working.
To reinstall the USB controllers, you need to uninstall them first. To uninstall the controllers, open the Device Manager by holding down the Windows key and hitting the Break key. In the System Properties Dialog box that appears, select the Hardware tab. Then click on the Device Manager Button (first one from the top). In the dialog box, expand the Universal Serial Bus Controllers. You will find it at the bottom of the window.
Once expanded, right click on each of the USB Controller and select uninstall from the context menu. You may be presented with a message saying something about system instability. Ignore the message and uninstall all of them.
Note: Please check the Screenshot above to make sure that you are uninstalling the correct entries.
Once done with the uninstall process, restart your computer. All the USB controllers will be automatically be reinstalled with fresh configuration. Once the installation process is finished and Windows XP is ready, insert the plug and play device into the USB port. This Windows XP troubleshooting step helps in most cases and following this, the operating system should be able to recognize your Windows XP plug and play devices. If the problem of USB plug and play not working is still there, you will have to get a technician whi can replace the USB ports on your computer.