Install a minimal W98 environment and then launch the XP CD from within it. Chose New Installation (as opposed to Upgrade), copy all files to disk for install, and set installation to let you chose the install location.
For some odd reason, I [less than] occassionally ran into this problem on an older PC, one that I nuke & pave a lot on with various OS's. Make sure the drive is configured as for LBA and not Large/Normal, and you may want to have it Autodetected in the BIOS.