As you may already know, instant initialization is a way to prevent data (not log) file create and grow operations having to zero-initialize the new space before allowing it to be used. This can vastly speed up these operations as zero-initialization can take a *long* time for large files. This is especially useful in disaster recovery operations as the first phase of a restore is always to create the requisite files, if they don't already exist. Cutting minutes or even hours from this phase can significantly reduce downtime. It's available on XP SP2 and Windows Server 2003 and above. You can get more details from a blog post of Kimberly's from March 2007.
The way to enable it is to give the SQL Server service account the 'Perform volume maintenance tasks' privilege and then restart the service. There's no way to enable or disable it from within SQL Server, and until now, no way I've known of to tell whether it's enabled from within SQL Server. I was teaching a Microsoft-internal class on Database Maintenance last week and one of the students came up with a neat way to tell - using xp_cmdshell to execute the whoami /priv command, which lists all the privileges that SQL Server service account has.
The whoami command is available on Windows Server machines but for XP you need to download the support tools from Microsoft to get it to work, as I did on my laptop. You can get them here (5MB download) and you need to stop/start SQL Server on XP after installing them so it picks up the new tools path. Now, most people will be running with xp_cmdshell turned off, because of the security risks involved with enabling it, so here's a script that turns it on, checks the privileges, and turns it off again.
EXEC
sp_configure 'xp_cmdshell', 1;
GO
RECONFIGURE WITH OVERRIDE;
GO
CREATE
TABLE #xp_cmdshell_output (Output VARCHAR (8000));
GO
INSERT
INTO #xp_cmdshell_output EXEC ('xp_cmdshell ''whoami /priv''');
GO
IF
EXISTS (SELECT * FROM #xp_cmdshell_output WHERE Output LIKE '%SeManageVolumePrivilege%')
PRINT 'Instant Initialization enabled'
ELSE
PRINT 'Instant Initialization disabled';
GO
DROP
TABLE #xp_cmdshell_output;
GO
EXEC
sp_configure 'xp_cmdshell', 0;
GO
RECONFIGURE WITH OVERRIDE;
GO
Enjoy!