There are many articles on how to do SharePoint development on an XP pc. E.G http://fernandof.wordpress.com/2008/02/11/how-to-install-the-sharepoint-2007-vs-2005-extensions-on-a-workstation/
The question is does this give you the same experience as the recommended method of developing directly on a SharePoint server?
The bottom line is NO. The reason is that these methods still won't allow you to connect to a SharePoint web.
i.e Anything like this won't work
this._Web = SPContext.Current.Web; or
this._Web = new SPSite(http://<IP_ADDRESS>).OpenWeb();
In other words you can compile but to see the results you will have to deploy to a SharePoint server.
The only exception to this rule is with web parts where code doesn't actually interact with the SharePoint object model and is just a standalone web part. Then you can test your web part by creating a web project with web part zones and run your web part from there.
If that hasn't put you off here are a couple of extra steps you may need to get going with SharePoint dev on XP.
1) Copy all the DLLs out of the GAC of SharePoint install.
From http://mossofall.blogspot.com/2007/05/how-to-get-microsoftsharepoint-dlls-out.html
So, to extract these DLLs (for example in the c:\temp folder), I use a classic XCOPY command in command line from the folder C:\windows\assembly\ :
XCOPY GAC_MSIL c:\temp /
Then use a normal windows search to find all dll in temp folderabd copy out the SharePoint related ones.

Copy the DLLS to your local GAC. i.e to C:\windows\assembly
Do an IISRESET.
2) If you get a personalization web.config error when testing we parts in local web part zone enabled Site
Make sure you set personalization on your web part manager off for testing locally
<asp:WebPartManager ID="uiWPManager" runat="server" Personalization-Enabled="false"></asp:WebPartManager>
Slipstream MOSS 3.0 Service Pack 1
At the time this article was written, Microsoft has only released a version of the MOSS 3.0 installer package without integrating the already available MOSS 3.0 SP1. When you attempt to install MOSS 3.0 using the installer package on the Windows Server 2008, you will get an error from the Program Compatibility Assistant stating that a service pack is required in order to install WSS 3.0. To circumvent this, we need to slipstream the SP1 bits into the MOSS 3.0 installer files. Basically, this involves extracting the SP1 EXE files into the Upgrades folder of the MOSS 3.0 installer files. Then, running the MOSS 3.0 installation should work.
How To
Matt Hester has compiled information on this issue and come out with a very helpful screencast which takes the user through a step-by-step process of slipstreaming SP1 into the installation. Before beginning this video, make sure you have a local copy of the MOSS 3.0 installation files as we will need to add files to the Upgrades folder. The screencast can be found here:
http://blogs.technet.com/matthewms/archive/2008/02/15/screencast-how-to-install-office-sharepoint-server-2007-on-windows-server-2008.aspx.
Error Using SharePoint Products and Technologies Configuration Wizard
After installing MOSS 3.0, you should be taken to the SharePoint Products and Technologies Configuration Wizard. After specifying the Database Server, Database Name, Database Account, and Database Password, you may encounter an error stating “Internet Information Service is not installed. You must have Internet Information Service installed in order to use the Sharepoint Products and Technologies Configuration Wizard.” If you receive this error, read the following two sections.
Error Source
If you used the Add Roles Wizard to install IIS 7.0 (as we did in Matt Hester’s How To), we were given the default installation containing a minimum set of role services. We will need additional IIS 7.0 role services, such as IIS6 Metabase which provides a legacy interface to applications requiring IIS 6 backward compatibility.
Install Additional Features
We can use the following script to install available feature packages, namely IIS-Metabase. Running the following script will give us the full IIS 7.0 installation, which installs all available feature packages. If there are feature packages you do not need, you should change the script to install only the packages you require.
Code Snippet:
Excerpted from:
http://technet.microsoft.com/en-us/library/cc730716.aspx