Sounds like the hard disk has failed.
When you boot with the XP CD, you should get the option to do a repair install. Is that possible?
I think it would be a good idea to get a new hard disk, install XP onto it and use the current one as a slave drive. Taht way you may be able to save your data.
When the PC is booting, do you see something like "press del to enter setup"?
If so, press the relevant key and enter the bios. What disks are on display there?