You did "Save and Exit" when you changed the boot order?
Did you attempt installing the hard drive, (as a "slave" if IDE), in another computer to determine if it is in fact defective?
Windows XP also won't install if the drives are set to ACHI or SATA without a driver. But, this usually accompanies a "no bootable device" or similar error. sometimes the system will loop hunting for a HDD. Set the HDD to run as IDE in BIOS