Windows

If it is scratched bad then you will need to give it a slight polish or wash under warm water with a small amount of washing liquide and wash from the center (not circular) to the outer surface of the disk in a straight motion. When done and dried (carefully, center to the outer edge) then wait a few minutes to dry thoroughly. Then try again.
If not then do another format of your drive, it should work ok.
Just DO NOT place the WET disk inside your cd/dvd drive. :)

OR get one of these:
http://www.amazon.com/Memorex-Optifix-Motorized-Cleaner-Scratch/dp/B00008EM7V

If you have more than 1 RAM Module installed you could be hitting a Timing Issue and the way around this is to remove all but 1 Module and then load the OS. Ofter the OS is loaded you can refit the RAM that you removed.

The Windows Installer is very finicky when it comes to Timing Issues between different RAM Modules. A system can work perfectly with the RAM but you are unable to install Windows with it fitted.

The other thing you may need to do is wipe the HDD with a Wiping utility like Boot & Nuke available free here

http://download.cnet.com/Darik-s-Boot-and-Nuke-for-CD-and-DVD/3000-2094_4-10151762.html

or Kill Disc

http://www.killdisk.com/downloadfree.htm

As XP can not be installed on a system that has previously had 7 loaded. This is a result of changes to the Security relating to HDD Partitions in 7.

Col