This MacBook should support booting from USB as referenced here Starting from an external USB storage device (Intel-based Macs)
However as noted in the knowledge base article:
If you use Boot Camp, you may not be able to boot natively into supported versions of Microsoft Windows XP or Windows Vista operating systems installed on external USB hard drive.
This can probably be extrapolated to USB boot media as well.
According to the Bootcamp 3.0 installation guide it seems to hint that a install CD / DVD disk is required:
Important: You must use a single full-install Windows installation disc. You cannot use an upgrade version of Windows. If you’re installing Windows XP, you must use Service Pack 2 or later. You cannot install an earlier version of Windows XP and then attempt to update it later.
Mac OS versions up to OS X Lion and MS Windows versions up Windows 7 32 bit are officially supported to boot on this Mac according to
EveryMac's MacBook 1,1 notes on supported operation systems