Hmm, interesting thread. I actually saw what could be the same issue in person about a week ago. A friend of mine was bringing his XP computer over to another friend's house to be re-installed, and during the install, it sort of just stopped installing while it was detecting hardware, at around the 34-35min to go mark. (Or so it said.)
The hardware wasn't hard-frozen, because the sequence of colored squares in the corner was still going.
(Is that some sort of hypnotic mind-control thing, btw? Making you more suceptable to accepting the marketing pitches that pop up on the screen about how wonderful XP is when installing?)
Anyways, I told the friend that was re-installing to just leave it, but after about another 10-15 minutes it hadn't moved, and the CD-ROM light wasn't doing anything either, so we reset the machine. Let it boot up to the HD, and it automatically continued on installing and detecting hardware from that point on sucessfully.
One of the first things that it did, was flash the screen black, which may indicate that XP was detecting the video card. It was a GF2 Ti AGP, I believe. The system was a P4 2.26Ghz (533Mhz FSB), with 512 (or maybe 2x512) PC2700 memory, a Creative Labs 52X IDE CD-ROM, Seagate 40GB IDE ATA-100 HD, Intel chipset mobo. It also had a non-bootable PCI SCSI controller (I think ACard), with a Sanyo 8x SCSI CD-R drive attached.
I'm not sure what it was exactly hanging on, whether it was actually the video, or something that is attempted to be auto-detected before the video, but after resetting it, it continued on like nothing had happened. So apparently something was slightly dodgy during the hardware auto-detect sequence.
Have you tried just simply resetting the machine when this happens, and then letting it go on about it's merry way? That could be the simplest solution here.