If they do in Windows the CD Drive is OK and you need to make some adjustments in BIOS to set the Optical Drive to the First Boot Device to do whatever it is you want to do here.
As for the Issue of the Fake Copy of XP I'm not quite sure here where that comes from as if you have a M$ Supplied SP2 Disc they will allow SP2 to install on Freaked installs of XP. If that is the case all you need do is ring the NB Makers and ask for a Replacement Product Key for XP.
If you have a M$ XP Install Disc and the NB isn't a name brand like Dell, HP Gateway and so on you can ring M$ and ask for a replacement Product Key. You will have to read the Codes off the CD's Inner Ring to the people at M$ so that they can supply the Correct Key to work with that Install Disc.
You can use Keyfinder available here to change the Product Key and then WGA will report the Unit as Genuine.
http://magicaljellybean.com/keyfinder/
If you do not have either the System Makers Recovery Disc or a M$ Supplied Install Disc but only a Burnt Install Disc then you can use Boot & Nuke to clean the HDD by writing Zero's to every sector and then perform a Clean Install of XP. This may involve entering BIOS and changing the Boot Order which should be set to Floppy First if you have a Floppy Drive, Optical Drive as the Second Boot Device and the HDD as the Third Boot Device. After you set the Boot Order to this you need to exit BIOS and Save the changes when you are prompted and allow the system to restart with no Floppy Disc in the drive and your Install Disc or if you are using a CD to Run Boot & Nuke have that in the Optical Drive to run the required application.
You can download Boot & Nuke here
http://www.dban.org/
There are several different versions one for Floppies and one for CD's to boot off if you do not have a floppy drive.
Col