My pc now recognizes the drive as a local drive,

There are several things to try:
1) Disconnect all USB devices and restart the computer. Then plug in your external Hard Drive. In some cases, this has worked to enable external devices as there's a conflict between some USB devices. Once working, you can add any other USB devices you have.
2) Since the drive is recognized by XP, right click on it and if you have access to Tools, try to check the volume for errors. It may ask you to reboot and do a scan disk on startup. Sometimes although the computer recognizes the volume, it hasn't sufficient information as to how to access it. Running a scan disk can cure that problem.
3)Re-assign the drive letter; Occasionally XP can't access a path to the external drive; if it assigns a letter, in turn it will gain access
Change Drive Letter
The link above provides step by step instructions to change the drive letter
4) Run Windows Update and install SP3; Service Pack 3 addresses issues with external devices that weren't fixed in either SP1 or SP2
I do hope one of these answers provides a solution to your problem. Please post back with any other questions or just to let me know how you made out. Unfortunately, you have a common problem but no one FIX has been identified by Windows to solve it.
Best of luck!
Greg