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with Windows Vista and Windows 7 in this respect but that Windows XP, being a 2001 technology and more than a decade out of date, doesn't do this according to the standard "modern" Windows conventions.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

I found out that iTunes will force write to the MP3 if you input all the meta data in and paste the artwork, press OK, and then go back to the Artwork Menu, select the artwork, use CTRL + X (Cut) and CTRL + P (Paste) and click OK to force it. After that, then all the metadata starts showing in Windows Explorer along with all my other devices.