Is it attempting to read the DVD/CD-ROM drive just prior to booting from the hard drive or not? My machine states that it is (attempting) to boot from CD on the POST screen so I know that if it doesn't, it is most probably a problem with the disc rather than the machine.

Assuming this is an original, genuine Windows XP disc, there shouldn't be a problem as they are designed to be bootable.

Do you know whether or not you can boot from a USB drive or not? If so, you may be able to boot from that and run the Windows XP install from there.