I'm afraid I never got on will with the software that came with XP. I didn't find it very useful.
Vista came with better photo managing software and I think the latest version is available for Free download.
It may be worth seeing if this works on XP.
Photo Gallery - Windows Live
(You can stop it asking if you want to log in to Windows Live and just use it locally on your PC).
It allows multiple folders of Photos to be linked in to it's gallery and allows drag and drop between those folders. All photos are also visible using standard 'My Computer' etc. It has simple photo editing features as well.
Don't think I'm advertising Microsoft here. There are lots of other bits of software you could use for similar things. It's just that I don't think the stuff that comes with XP is much use while I find this one very useful.