Probably the easiest way to figure out what is going on is to run the same command on the command line -- that usually gives you more useful error messages.
You might also see if the /r (copies read-only files) option helps. Possibly the SDK files get marked as read-only when zipped-up. (If this helps let me know so I can update the docs.)
In the end, though, there's no magic to using xcopy here, you just need to get the files copied to the right folders, and there's more than one way to do it. You can even copy them manually if setting up the post-build step is hanging you up.
(For more info on xcopy see http://technet.microsoft.com/en-us/library/bb491035.aspx).