I feel your pain. It sounds like you've done just about everything right, too.
Here's a suggestion: Format the disk as FAT32, and then reboot the computer to MS-DOS. At the MS-DOS command prompt, copy the Windows XP Professional CD to a folder on the hard disk. Try running Windows XP Setup from that folder.
Also, here are some other things you should try: update your BIOS with the latest version from the OEM; reset the BIOS to its default settings; replace the cable connecting your hard disk to the main board; and make sure that your hard disks and CD-ROMS have their master/slave jumpers configured correctly and that they're cabled correctly. Last, try a different Windows XP Professional CD on the off chance that the one you're using is corrupt.
This was first published in April 2004