Why can't you run Azure on Windows XP?

 The Windows Azure storage services (Blob, Queue and Table) have no dependency on any particular OS and are available through REST protocol for any platform/language. The SDK provides ability to write hosted applications and therefore requires Vista SP1 or Windows Server 2008 to properly simulate cloud environment.

Currently the only dependency on Vista SP1/Server 2008 is Development Fabric, the simulated execution environment for hosted services.  This is because it is based on IIS7 technology for hosting ASP.NET application, but IIS7 is only available only in the newer OS versions.  The Development Storage has no dependency on OS.  The tools for building cloud apps have no dependency on the OS either but you have to use the newer OS to simulate the execution on Development Fabric for the preceeding reason.

Meanwhile, if you are into hacking and really want to give it a try on XP by side-stepping the System Requirement, you might want to use the ORCA.EXE tool (found in the Windows Installer SDK) to remove the OS and IIS7 requirement from the SDK MSI.  At least you can play with the simulated storage system for now.  We never tested this out, so try it at your own risk :-)  If you are in the luck, also check out the sample PowerShell snap in named "cloud drive", which allows you to mount your blob/queue storage account as a drive.