Windows XP it self doesn’t have a limit on the number of files per folder. It depends on the file system that you are using. The max files and folders per folder are:
FAT16 – 512
FAT32 – 65,534
NTFS – 4,294,967,295
If you use long file names for the files and folders (over 8 characters for the file name and 3 for the extension) then the number of files and folders available per folder will be reduced on the FAT16 and FAT32 file systems.
If you need to put more files and folders in a single folder you’ll need to convert the drive to NTFS.