Check that your floppy drive has a power cable and a data cable. The floppy's data cable has a twist in the ribbon, and the mobo and drive should be on opposite sides of that twist. Also, ensure that the red wire on the cable is on Pin 1 of your motherboard, and Pin 1 of your floppy drive.
Bigger picture: to reformat, simply start Windows Setup from the WindowsXP CD. When it reaches the part where it shows the existing partitions, delete them all, then press the F3 key twice to exit Windows Setup. Now start Windows Setup a second time. You'll be able to create partitions and format.
The reason for running Windows Setup twice is so you don't end up with a menu offering two WindowsXP installations during boot-up. Hope that helps
edit: also, since you're doing a fresh installation:
wormproofing tips to get you through the vulnerable just-built stage.