Maybe I'm missing something and this is a stupid remark, but did you check the boot device priority in the BIOS? If you want to install OS from a CD, your CD/DVD drive should be at the top of the list. If the HD is SATA, you're also gonna need floppy / CD with a driver. When you start Windows setup, it says you should hit F2(?) to install a SATA / RAID driver, it will only recognize such HD's after that.
And yeah, sounds like wasted or corrupted HD.
