Is there any chance the CD is scratched? Also what, word for word, is the exact error message you are getting?
Is the jumper set correctly on the CD drive? If it is by itself you'll want it on Cable Select. It can still show up in bios if that is set incorrectly. Also, do you have a different CD drive you can try from a different computer?
Assuming you are not trying to put together a raid array, The only drivers needed to instal Windows XP are on the CD. If it can't load to that point then chances are it's the CD or the CD drive.
Which versin XP is this, and is it the full version disk or an OEM disk? Also, is this Media Center XP by any chance?
Could be a break in the IDE cable possibly?