do you have an XP cd, it does sound like a hard drive failure but cant be certain.need the xp cd for sure, but most likely good old pc world did not give you a copy, just a recovery cd.(my opinion but pc world suck).
can you boot into safe mode (tapping F8 at startup)
could also be a bios corrruption but seems unlikely,the only way to make sure ios to remove the cmos battery for 20mins,(this is on your motherboard remove power cable then wait for 20 mins before removing,)
regards
danzil