Sounds to me like the CD is not being recognised as having a boot sector - taht or teh drive is not recognising it. Could be the drive would benefit from a firmware update if available.
Here's an option though. If the HDD is bootable into an OS and has enough space then boot up, insert teh XP CD and copy the entire i386 folder to a sub-folder on your HDD somewhere ... better still to a partition that is not or will not be the main boot partition. Then run the setup from within that folder - no CD required.
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