Why SoftIce is not setting breakpoints?

You're not doing anything wrong. The softice loader simply does not work properly with WinXP and fails to break on the .exe's entry point. Here's one workaround:
1. Load softice.
2. Find your .exe file's entry point using HIEW or PEEditor or some other such utility.
3. Run your proggy and note the module name (ie., name of the .exe file). ie., if you're running BITCH.EXE, the module name will be BITCH.
4. Break in with softice using the keyboard hotkey (default: <ctrl><d>).
5. In softice, switch to your proggy's context with the ADDR module-name command; ie., ADDR BITCH
6. Set a breakpoint at the entrypoint as normal, via BPX <entrypoint>.
7. Exit softice by continuing execution with a X or G command.
8. Close your proggy.

Now the next time you run the proggy, it should break at the entry point. I've had it work sporadically at times, for unknown reasons, but this usually does work.