I have been doing some more in-depth tests across a few different setups and can say that VSSCopy is awesome!
After applying that image (and fixing the boot record) Windows XP boots without any issues. When booted windows does detect the new HDDs and requests a reboot to apply updates (i am assuming this is where the reg keys are being updated).
My biggest hurdle now is that all my windows 7 installs are 64 bit where VSSCopy doens't run at all