You haven't mentioned if you have fdisked the HD and set up a partion or partitions, or if you have formatted the new drive. As you can see files on the HD I assume that you have.
If not then that is you problem, if you have, boot from the XP CD and then using the options that appear remove the existing partition/s and create new, then format the hard drive (NTFS seems best). Set the bios to boot from CD first, HDD0 second, then try again to install XP, at some point at the end of the installation process you will have to remember to remove the CD so that the PC will boot from the HD.
Once you have sucessfully installed XP change the BIOS to boot from HDD0 first.

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