As you know I'm giving this thing a try, so far no major troubles as far as running on XP, besides the fact I can't find any instructions what so ever on the cd as to how to use it

I'm slowly figuring out things, such as when waiting in line behind another to take off don't push the trigger button that you use for "brakes" in FS9, the guy in front of you will have a very short flight, LOL!!!

The first thing I downloaded was the P-38J Diamond back, I tried to install per the read me, but the sim tells me it cannot be displayed.
I moved the aircraft folder to "CFS Aircraft", copied the Gauges to "CFS Gauges" opened up the sim and found it listed but no spinning image of it, tried to start a flight with it and got "model P38j2 model cannot be loaded" (or something really similar)
I checked and the designer stated that the model was made for CFS1 so what did I do wrong if anything???

Hi Jeff. Glad you're enjoying CFS1. This was my first M$ sim & the reason I got involved in this lark. It's still one of the best. IMHO

Basically there's no difference between aircraft created for FS98 or CFS1. 99.9% of all these aircraft were created with Flight Shop/AF99. There's a known conflict with some earlier models animated with early versions of the Aircraft Animator utility & Win2000/XP. This has nothing to do with the sim itself & they work fine on Win98/Me. The MDL Repair Utility will usually fix it.

I once reckoned to know all there was to know about CFS1 worth knowing but sadly this is no longer the case, bad memory in my dotage. I addressed this little bug on my CFS2 FAQ page (I didn't do one for CFS1) & the same applies to these aircraft whether they're used in FS98, CFS1, FS2000, CFS2 or FS2002.  
You might also find my CFS Panel Clinic & Aliasing article useful. http://www.simviation.com/lair/index.htm