Holy crap have they got you by the balls with that laptop. There's an "External Module Bay" connector on the side. You have to use the cable that came with the laptop, to connect to a proprietary docking bay in which you install one of Dell's normal laptop bay devices like a CD drive. It's just an interface to the second IDE port.
Once you have a USB drive plugged in, shut down and boot the computer. Go into the BIOS and the boot sequence ought to have the USB drive listed as an option. If not, then there probably is no support for it, which is just silly.
I was under the impression that copying the CD to the hard drive to install from there required a bit of tinkering, for Win2k/XP.
The hard drive didn't have a hidden partition on it with the "restore" image on it, did it?