Ok, I have real progress now. I found that if I include vmware-authd: and my IP address of the WinXp workstation I can use the VMWare server console and start installing a new os.
The problem now is I don't know how to expand the hosts.allow to /etc/e-smith/templates-custom/etc/hosts.allow
I tried using the /sbin/e-smith/expand-template /etc/hosts.allow but this did not work.
Tried looking a bit for the proper command but it is way past the end of the day. I will do more looking later.
Thanks again for your help