>>run command console from the windows XP install disk, and run fdisk<<
Tis part of the problem, as soon as you get the "hit any key to boot from cd" prompt you get no options at all, it just starts loading the set-up files, then shuts down due to a "problem was detected",
Me thinks that Set-up might be "seeing" the drive has the correct format, so not bothering to offer the format option first, either that or whatever caused the original kiss of death on the Win 7 op sys is still active and preventing installation of xp, hence my thought of third party formatting first.
>>You have got a win 7 cd?<< - nope, pre-loaded! an he`s too tight to buy a copy when he`s got xp3!!
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formatting win 7 lappy 
formatting win 7 lappy 