New hard drive on acer aspire 5740 can't install windows 7

Hi guys!
I'm a bit desperate right now. Here's the thing. I have an acer 5740g.(English, bought in the Netherlands, out of warranty, original HD: 640GB western digital included with windows 7 home premium).
The hard disk is dying. Everytime I restart, windows demands a launch repair that takes HOURS, otherwise it won't boot and will restart.
I bought a brand new Momentus XT 750 GB. It was fairly simple to remove the original disk and replace it physically. Problems start with trying to install an OS on the acer.

-First off, I went to the bios and set it to boot up first with the optical drive, so I can use the 3 recovery DVDs that I created on day one when I purchased the laptop... It just doesn't doesn't do anything when I put the first one and restart. Only the prompt blinking and the disk even stops spinning.
-I made sure the DVD drive reads discs. I put back my old hdd... waited till I can use windows again (hours after launch repair) and tried to read many DVDs and they all seem fine.
-Back to the new drive installed. No recovery. I researched a bit and found out that erecovery only works on acers with the "hidden partition" on the disk that came from factory. Gotta find another plan.
-I downloaded a copy of windows 7 (3.1GB) and burned the iso file on a blank DVD with hopes of installing it and then activating it with my key.
- Inserted Windows 7 DVD created with the microsoft tool. Same problem, no reading... I check again if my optical drive can read at all... checked... it reads DVDs...
- At this point I'm not sure what else to do...

What I want: All important files I had in my old hard disk are backed up somewhere else. I just need to get rid of the dying disk and replace it with my brand new hd and install windows 7 on it (and then activating it). I just can't seem to do this... any thoughts would be appreciated.
Thanks!