It was not so much the diagnostic that I was thinking of but the setup program.

It should not be necessary but also wouldn't hurt to try. It is basically just an initial format.

You say you had the same result on 2 different drives with 3 different disks which should eliminate either the drive or the disk as the issue.

What else could be wrong?

Elimination of the secondary CD drive should remove any misdirection issue.

All the searches I run point to hardware for this issue.

Are you sure that your drive & or RAM are compatible with the motherboard? Do you have the latest BIOS?

Also just to verify that you are following the proper steps please review the following:

http://michaelstevenstech.com/cleanxpinstall.html

Especially steps 14 15 16 etc.

14. Setup will show a progress box and reboot when copying files is complete.

15. When you see the "Press any Key to Reboot" do not Press any Key. If CD boots anyway, remove CD and reboot.

16. From this point, you will follow the on screen prompts.