How do you get started on creating a custom Windows CD?
And additionally, Do you need another license to be able to create a custom Windows Installation CD (of course, using a legitimate copy of mine)?
Is it even legal to create a custom CD with all the application I use often? (such as WinZip, IrfanViewer, NotePad++, etc)...
MSFN's Unattended Windows tutorials explains everything.
Not at all. You can use the same license of your currently purchased XP OS.
You can also make the install process (silent) install your favourite programs, etc. Lots of OEM providers do this. Eg. install acrobat (cringe), nortan antivirus personal free for 90 days then ask to pay your credit card (cringe), dvd movie software (cringe), etc... refer to nLite for info about this :)
You usually use a program to select what you want from your Windows, like nLite
Then you burn the iso on a CD... or even an USB key!
Try this lifehacker article, good place to start. It explains how to create an image of your system, with all the updates, settings and programs installed and then how to use a rescue cd for restoring your machine later on.
Edit: linked to correct article