It could be a number of problems, but the issue seems to be with your optical drive, not your hard disk. I'd check the jumpers on that, and make sure it's properly connected to both the motherboard and PSU. If you have a second optical drive you could try using it, instead. Also, make sure not to miss the obvious: enable the drive from the BIOS and use the boot menu (usually by pressing ESC at post) to choose it as your boot device.
Supposedly you can install XP from floppies (with CD support, of course). See
here for more information on that.
It could be that the Windows installation CD is corrupted or damaged, in which case you will need a replacement. Or you could have a busted drive.