Most USB devices will auto install the XP driver if XP has on. To install the manufacturers driver, you usually have to run their setup program BEFORE you connect the device, they usually state that in the installation guide.
You can try Update Driver from withing Device manager -- that should let you choose where to look; just point it to the CD.
You may be able to just run the setup program from the CD, but you may have to remove the XP driver from Device manager first (while the device is connected) then shutdown, unplug the device, boot, and install the driver from the CD, then plug in the device.
HTH
Jerry