Quote:
it was *not* booting off the CD
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The only time setup can launch is if it is booting from the cd, the files to show these options: format, install, repair are located on the cd, and are not copied to your hard drive, only continuing installation files are copied.
as small as it is, check that the pin on the back of the hard drive is set to master (far left pair of pins) a non-master drive will not boot in most computers.
Try connecting only 1 hard drive, as a master, and run the XP install, format the drive using a full/long format... this will take some time. Then start the install. When your computer reboots, you should be given an option to boot from cd, ignore it, if you are not given this option, remove the cd for a moment until the setup (hopefully) continues.