this may be a long shot, but i've had this happen before and usually I just clean the back of the cd and it seems to work better after that... if that doesn't work, you cd may be beyond repair... stick it into another computer and see if you can explore the cd and copy all of its contents over to the hard drive....
WHen I setup win9x systems I basically copy all the install files to a folder called win98 or whatever the case may be. Then remove the cd and install from the hard drive only. Its faster and your system will never ask you to insert the cd if you wanted to add other windows options..