I can transfer data from a 4 GB USB 2.0 flash drive to my c: drive faster than I can between my two internal hard drives which are both running SATA 1. I'm running Windows XP Pro and have an old Biostar P4M80 M4 motherboard with an upgraded BIOS. I would have thought that data transfer on SATA 1 between internal hard drives would be faster than data transfer using USB 2.0. Am I wrong?

Flash is faster. Nothing writes at 3gb/sec. If you had 2 VelociRaptors, it would be the opposite.

You'll probably find it's some form of mother board resource limit, both SATA drives are (probably) sharing a data channel (IRQ or DMA etc), so the MoBo has to read blocks of data from one, buffer it somewhere, then write it to the other; transfering from USB to SATA would involve two different data channels/devices/buffers so it can read and write at the speed of the slowest device.

Actually, flash in the form of a USB flash drive is far slower because of a combination of cheapness and the limitations of the USB interface. The internals should be faster for sequential operations, though you could be hitting some other limitation like MrLinux said.