I have a Firepod and a PC with XP, running Cubase LE. I had the same problems as you about only being able to arm one or two tracks at once.
You have to make sure that the Firepod driver is installed correctly and recognizes the Firepod and sync's (blue light) without issues. A main problem with sync'ing is an incompatible Firewire interface or card in your computer. If repeated installs don't recognize the Firepod correctly, try a new PCI (desktop) or PCMCIA (laptop) firewire card with a Texas Instruments chipset.
Download the newest XP driver from Presonus for the Firepod, any instructions for same, then download the firmware update. Uninstall the existing Cubase LE program. Uninstall the existing Firepod driver, re-install the newest Firepod driver. Repeat if the Firepod does not sync or if the sync light remains red upon starting the computer. Update the firmware on the Firepod using the utility and follow instructions exactly. If all goes well, re-install Cubase LE. If OK, then select the audio I/O and ASIO driver, referring to the instructions in the Presonus manual, follow all steps exactly. Next, download the Cubase LE 1.10 update program from Steinberg, unzip and install on the computer.
After installing, you should go to the control panel then multimedia and make sure that the Firepod is the main source for audio ins and outs, not the onboard soundcard or any other programs.
Make sure that you download the 10 track template/program for Cubase LE that Presonus has available on their site. Before opening Cubase LE & recording, import the file, then save as a template. Use the template for starting each recording project. Using this template, I was able to arm & record on all 8 analog and 2 SPDIF tracks in Cubase LE to record with at once. I was completely unsuccessful in doing that without using the file/template.
You should seriously consider setting up a new profile on your computer for recording only, and implement some/most of the preferred tweaks for windows XP available on
www.musicxp.com - they do help to set-up a nice, stable recording environment. It helps to have a computer dedicated to audio only, and internet surf/use office programs/games on another one.