Grab a copy of Memtest86+ (http://www.memtest.org/) and run that for at least one full cycle. There's a chance you've got some iffy RAM.
Out of curiosity, what happens if you boot the CD with the all the hard disk drive(s) in the machine disconnected? Obviously, it won't install this way. I'm just curious if it hangs the same way. I'm seeing some posts on other sites from people who found that an existing installation on the hard disk drive was causing this type of hang that you're seeing.
Ahh! My psychic powers pay off. What's on those drives now? You might try plugging-in only the drive you want to install onto. I would bet that if you plug in a completely empty disk (zeroed-out with a "disk nuke" utility or some such) that it'll boot the CD fine. My guess is that you're tickling a bug here.
The debug-checked version of NTDETECT.COM could tell you what's going on, but getting that onto the Windows XP CD in a bootable fashion is going to be a lot of work. I'd see if you can muddle thru the install w/ a wiped disk, as I've suggested, and then see how she boots when you plug all the disks back in.