It's a LOT easier than you think... forget about anything involving copying setupldr or anything else from the PE source, or using Barts peldr util. All you have to do is:
1. Install the Recovery Console
2. Copy BOOTSECT.DAT from the cmdcons directory to the root of C:
3. Copy your PE I386 directory to the root of C:
4. Rename the PE I386 directory to MININT
5. Copy the winbom.ini from MININT to the root C:
6. Add a line C:\BOOTSECT.DAT = "Windows PE" /MININT to boot.ini
And that's it. Obviously when you boot into this PE environment, the C: drive will actually be X:. I'm not sure if there's another way to get it booting straight into RAM off an ISO without replacing the native 2003 ntldr, but that sure would be nice.
Note: I'm not sure if you actually need to install the Recovery Console, but you at least need the bootsect.dat and cmldr files in the root of C. If you get an 'ntldr missing' error, it's actually the cmldr that you are missing.