I think I figured out a way to get an Upgrade CD to work.
Take your upgrade CD, copy it to your hard disk, take a old copy of Windows CD (95,98,ME,2K) and copy it to your hard disk as well. Make a bootable DVD containing the Windows XP data, and in that DVD create a folder called "WINDOWS-OLD" that contains a copy of the old Windows data. This way when the installer starts looking for a previous installation of Windows, it should find it on the DVD, no need to switch discs.
http://www.pirates.com/ <-- Good overview on extracting a Windows XP CD, and the Boot Image. It also shows you how to turn a regular Windows XP CD into a SP2 install CD as well. More or less you could follow the procedures listed, but also include the files from a Windows 9x CD in there as well. And burn it to DVD instead of CD. (Unless we can figure out just what files are needed for the installer to recognize it as valid.)
Alternatively, you could have Boot Camp partition the drive, format it somehow, make a folder called "WINDOWS-OLD", copy the old Windows CD over to that, then start the Windows XP install CD.
I don't have the hardware to try this, but the concept seems sound. (I've done it before on normal PC based systems.)
-timb