Hi there,
It may not be a hard drive failure.
From the way you described the disk it sounds like a generic Windows CD, the problem is that (from reading the specs) your laptop has a SATA drive which Windows XP often requires a driver for or it will fail to recognize it (as it has).
You will need to download the SATA drivers for your laptop from
here I believe it is "Intel Matrix-Storage-Manager Driver (SATA)" under 'SATA' and put it on a floppy disk (it will probably be an exe that you will have to run to create the floppy) and when the windows disk starts up it will prompt you 'Press F6 to install a third party SCSI or RAID driver' hit F6 and put the floppy in.
From there continue as you were.
EDIT:
As for the bios option, there should be a 'restore defaults' or similar option in the bios, try that and then set the boot record to boot from CD Rom first and then the first hard drive second.
Hope this helps
-Lebowski.
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Last edited by Lebowski; 11-05-2007 at 08:51 PM.