How to embed iTunes metadata into the actual files?
I think your problem is with Windows XP and not with iTunes.

iTunes does indeed put the meta-data into each music file, according to the standard ID3 meta-tag specification.

I have checked with my iTunes 10 library in Windows 7, and Windows Explorer in Windows 7 displays the meta-data for those music files from iTunes correctly.

I can't test this, not having a Windows XP system anymore, but I wonder if perhaps Windows Explorer in Windows XP displays file meta-data in some different manner that causes it not to recognize the ID3 tags placed in the files by iTunes 10.

I know that the way that Windows Explorer displays meta-data changed radically when Windows Vista was released, and works basically the same way in Windows 7.

I suspect that iTunes works fine with Windows Vista and Windows 7 in this respect but that Windows XP, being a 2001 technology and more than a decade out of date, doesn't do this according to the standard "modern" Windows conventions.

Here is a file from iTunes 10 displayed in Windows Explorer in Windows 7.