This is a handy method of getting around the requirement for XP to be booted from fixed media. One of the biggest problems with building a car pc or other highly mobile device is that you really should boot from a fixed media for long life as standard hard drives are not vibration friendly.
Step 1: Choosing media
For this to work, there will have to be enough room on your CF card for your install of XP plus an install of your favorite distro of Linux. With this in mind, I would recommend no less than a 4GB card. Speed is also an issue, as read and write speeds are slower than on a conventional hard drive and slower read times can lead to longer startup times. Buy the best that you can afford, as a 4GB card can be had for $10 off of ebay. Write cycles is another consideration, since all normal CF media has a limited number of write cycles. If the write cycle problem is a deal breaker, a microdrive is another good option. It has the small form factor of a CF flash drive but without the read/write limitations. The microdrive is limited to 8GB in size, but work well when coupled with a standard CF card. Note that some embedded microdrives will internally be wired as master and will not work at all in the slave position on a dual CF adapter. This will keep you from using two microdrives on the same IDE connector
Step 2: Interfacing with the computer
This is usually done with an IDE to CF adapter. Single and dual card adapters are available. If you think you will ever need two cards, get the dual adapter now save yourself the trouble later. If you do choose to use a microdrive, note that they are slightly thicker, and that adapters need to mention that they will fit the thicker microdrives.