A reboot might help, although it shouldn't be necessary with XP. Something else to look at is the power supply, some external caddies need an extra adapter plugged in. If there is no provision for this then make sure it is plugged into a USB port on the mainboard itself, not through a hub. If this doesn't work, then in a way you might be answering your own question of whether it works or not. With an external USB drive the computer needs to install two things: the drive itself, and the USB to IDE interface which is in the external case. It looks like the interface is working, and it is seeing the drive, but perhaps the drive isn't spinning up properly and that's why it isn't useable.
The best way to test a drive is still to connect it to an IDE cable. That way you eliminate any possible conflicts with the IDE/USB interface, power supply etc.