Dear AX ji,

It is compatible because I have been using this since past 6 months and this was working fine.This had happened earlier too but that was cured by this way : Before inserting external hard drive I started MS XP drive and inserted that external hard drive in system and after that only I switched to MS Server 2003. This way it had worked but now this idea is also not working.

BTW my external hard drive's brand name is SimpleTech.

Yes I did check my device manager. It is showing like below screenshot. But it is same even if I do not insert my external hard drive.
One more thing I want to share that flash drive works fine in this server and XP home side as well.