Windows XP Professional does work on an NT4 domain, but it acts more or less like Windows NT 4.0 workstation on the network. That means that you lose features such as IntelliMirror, including Group Policy. Many of the same policies are still available through System Policies on a Windows NT-based network though.
With that said, a scan of the UseNet newsgroups tells me that a good number of folks are having problems with Windows XP Professional on a Windows NT-based network. One of the most common issues I've come across is joining Windows XP to a Windows NT-based domain. The article Q314366 in Microsoft's Knowledge Base talks about this issue a little bit. Also, here's a summary of the advice I've received on this topic:
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This was first published in March 2002